LeapRate spoke to Barry Flanigan, Head of Electronic Trading Solutions at IS Prime to discuss the challenges faced by brokers when diversifying into new markets and the importance of optimising both systems and operations in order to remain competitive.
Barry Flanigan, Head of Electronic Trading Solutions at IS Prime
LR: ESMA has resulted in brokers needing to diversify. To remain competitive, many have had to adapt and reposition themselves. Can you highlight some of the challenges this has caused?
Barry: When ESMA introduced its new trading rules in 2018, retail brokers had to rethink their strategies due to the more demanding regulatory environment and the corresponding squeeze in profits. In particular, following the Product Intervention Measures, brokers have been looking beyond Europe in order to diversify their client base and maintain volumes.
Many of these firms have, alongside their core businesses, started entities in offshore jurisdictions and with this growth has come the requirement for significantly more complex setups across trading, technology, staff and licensing, which has driven up costs.
LR: How does IS Prime approach this?
Barry: We take a holistic approach. A broker may have ten different licences across the world but we consolidate structures and provide a single, high quality service for each entity. When brokers chase leverage in new jurisdictions, the advantages of diversifying can be undermined by setup costs and complex administration so it is vital that trading structures are streamlined and cost-effective. We can help brokers to navigate multiple jurisdictions, avoid convoluted technology implementations, and amalgamate costs to provide overall reductions. In other words, we can provide optimisation through consolidation, enhancing commercial and systems efficiency.
IS Prime has a strong track record in stripping out inefficiencies at every stage so that brokers can extract as much revenue as possible from current volumes. We can combine liquidity services with risk management, technology and analytics to provide a comprehensive end-to-end broker solution.
We also have a global view – which means that we have a firm understanding of how clients need to operate across different geographies. This means that we have the expertise to help clients to expand into new territories without the complexity and costs of new contracts.
LR: Liquidity is a key determinant of success in FX markets. IS Prime is increasingly selected as the sole Liquidity Provider for clients. Why is this key and what are the disadvantages of having multiple Liquidity Providers?
Barry: Having multiple Liquidity Providers splits resources and capital requirements, which is unwieldy and makes the business susceptible to errors. The more Liquidity Providers you have, the greater the probability of receiving an inaccurate or latent quote. Although adding Liquidity Providers can improve spreads, execution will usually suffer, resulting in poor fills, delays, rejections, and prices sometimes disappearing altogether at critical moments.
LR: How can risk management be used to optimise a broker’s business?
Barry: Risk management is one of the key areas for optimisation. While internal risk teams will always play a fundamental role in risk management process, they will largely be restricted to the data in front of them and their own experience managing their books.When brokers widen their perspectives with the global view and controls that IS Prime and IS Risk Analytics (ISRA) provide, they increase resilience and are in a much stronger position. We can provide significant value by working alongside a broker’s own risk management team.
Risk management, liquidity, technology and compliance are all interlinked – when you optimise one area the benefits spread throughout the business.
LR: IS Prime has introduced Health Checks for optimisation. Can you tell us more about these?
Barry: Our Health Checks are a high level bespoke service with a consultancy approach. The service is very much geared toward optimising a client’s book and involves an assessment across all aspects of their business. We then provide a full set of unbiased, statistically based recommendations in order to improve efficiencies – from enhancing risk setup to cleaning up risk-adjusted returns or making changes to the technology infrastructure.
We have also produced an FX Liquidity Optimisation report entitled: Seize The Day.