What do you consider to be the biggest change to the market over recent months?
I’ve noticed there’s been a real change in attitude from institutional brokers around the world about the need to have a Prime Broker. SNB events resulted in many brokers being released by their Prime Brokers – and these brokers were forced to look at alternative ways to continue in business. They may have wanted a Prime Broker relationship but weren’t able to secure one due to the unfavourable terms on offer. As it turns out, they are now reaping the benefits of working with organisations such as CFH Clearing who can help them to operate effectively. Without a Prime Broker, their fees have been reduced and the minimum monthly commission requirements have gone down, too. If they manage their business well and work in partnership with the right organisation, they are able to be more efficient and more profitable – whilst still having access to a wide range of liquidity at competitive rates. The perception that brokers need a Prime Broker has now changed – and that has had a positive impact on our business and a positive impact on our clients, too.
In light of the SNB events last year, do you see brokers’ appetite for B book risk changing much in the future?
Many B bookers survived SNB purely because their exposure in the effected pairs was minimal. Since SNB events some A/B book brokers have had to take on more risk via the B book to increase profit quickly back to pre SNB days and maybe to counterbalance the increase in margin requirements on the STP side. Brokers now look to run risk at a more refined level and have access to sophisticated risk assessment tools to build a better predictive picture of their clients, leading to a more balanced income. They are using systems like ClearVision which allows the broker to split clients’ flow between different risk books or to send STP. We have noticed more established brokers are looking to move away from a straight A/B book model. They are using more advanced analytical tools to establish trading cycles of clients in order to reduce risk and increase the consistency of returns.
What do you think has been the biggest notable change since the inception of online trading?
It has to be the introduction of the retail sector and ticket sizes. The internet has obviously spawned a mass of retail brokers that have given the man on the street access to the FX market in a way that we would have never imagined years ago.
With small deposits clients have aggressive leverage levels coupled with spreads that most Interbank dealers cannot access. The retail market looked very vulnerable back in January 2015 but it has since proved to be a resilient area that we at CFH Clearing see growing in the future, most probably in a more controlled manner. We look forward to playing a key role in supporting brokers with multi-asset execution, Prime Brokerage services and trading technology in 2016 and beyond.
What do you think are the priorities for brokers in 2016 and how can CFH Clearing help?
I would highlight the following three areas:
1) Professional risk management systems, with the ability to tailor the risk per client – a tool such as ClearRisk in our ClearVision suite of products.
2) A deeper understanding of client requirements and trading styles so that brokers can tailor the liquidity specifically for them and have different strategies in place for different clients.
3) Building stronger relationships with Liquidity Providers so they are aware of your requirements. The more they know about how your business operates, the more they can help you and provide you with exactly what you need.
CFH Clearing can give clients the flexibility to tailor their liquidity to suit different customer requirements as well as the option to plug our liquidity tools into the platform of their choice. We have a wealth of experience in working in partnership with clients across the globe to help them to operate more effectively.
CFH Clearing is an interbank prime of prime solutions provider for small and medium sized institutional clients and is one of the largest interbank STP venues in the market, with over 400 institutional clients in over 80 countries. CFH Clearing is authorized and regulated by the Financial Conduct Authority (FCA). For more information, please visit www.cfhclearing.com