Retail brokers deciding to work with a new Prime of Prime (PoP) should be aware that the onboarding process, technology integration and support from their new PoP are all key factors in their ability to service their own end clients effectively. Ultimately these could result in the success or failure of their business.
LeapRate spoke to Daniel Crane, IS Prime’s Deputy Head of Electronic Trading Solutions to find out more about best practices to ensure that retail brokers not only receive a seamless onboarding experience but also get the most out of the relationship over the long term.
LR: How do you kick-start the process with a new client?
Daniel: The first important consideration is to gain an understanding of the client’s current environment, particularly in terms of connectivity and third-party technology setup. A PoP should always look to add value to a client’s existing setup rather than force them to change their business model, their operations or their workflow, just to accommodate the PoP or similarly on the inverse, the underlying technology vendor.
At IS Prime, our initial discussions focus on which data centres they are in, how do they connect, how do their clients connect, which third-party pieces of technology or bridges do they use and what kind of proprietary systems might we need to interface with. This is a much more refined and collaborative procedure than a ‘plug it in and hope for the best’ approach, so at this initial stage it’s essential to go through everything in granular detail.
Why that’s important becomes clear during the second phase of the retail broker/PoP relationship, when clients actually start trading. If the PoP understands the retail broker’s setup and topology from the outset, potential issues are avoided such as quote delays and unexplained latency that could result in slippage, client complaints and an overall poor trading experience.
LR: A key part of your role is to optimise the client’s setup for pricing and execution. Is this an area that the technology vendors would normally get involved with?
Daniel: Much of the value a PoP should offer is in helping clients set up their environment to get the best out of the existing technology that they have, in a non-intrusive and non-disruptive way. Some of our client setups are extremely complex and they wouldn’t necessarily get the dedicated help they need from the technology providers. Not because the tech vendors are being obstructive but more because they don’t tend to specialise in execution and flow dynamics.
At IS Prime, we can help our clients configure their technology to send orders through to us in a particular way based on the type of end-client flow, so that those orders can be executed cleanly and effectively in to the market.
It’s also important that we gain and in-depth understanding of the client’s business, so that we can price exactly as they need to be priced, across whatever currency pairs or products they are trading. Our in-house proprietary technology can assist with minimising the market impact and adverse execution around situations such as copy flow. We can also help them to identify toxic flow, or institutional traders masquerading as retail clients, and ensure that the correct pricing and liquidity is matched appropriately to the type of flow.
LR: How can a broker ensure that the pricing they are shown from a potential liquidity partner will not degrade over time?
Daniel: An increasing trend in the market is that firms are contacted by various “liquidity partners”, some of whom are PoPs, but most of which are simply retail brokers targeting the institutional market. Many of these, in a sales pitch, are able to show what appears to be exceptionally aggressive pricing in a demo environment.
However, what the client doesn’t see at the outset is that this pricing will degrade over time once that client starts to trade. The reason for this is often because they have simply been shown an artificially created price in demo (which happens with worrying regularity) and this is not truly reflective of the underlying market(s). What is more concerning, however, is the long-term degradation of many brokers’ pricing. This comes about because very few have the technology, tools and expertise available to identify ‘soft’ vs ‘sharp’ flow and to manage its market impact and execution without the broker having to change anything at all.
Our retail broker clients rely heavily on IS Prime in terms of overall management of the book. We have the ability to group flow profiles accordingly for our upstream LPs in the relevant Liquidity Pool(s) based on a number of different metrics to ensure that the type of flow sent to each LP within that particular pool is executed correctly upstream on the LP side – and it is this ability, combined with the understanding of their clients’ underlying trading strategies, that avoids the degradation of aggregated prices over time.
LR: So what is the secret to a successful long-term relationship between a Prime of Prime and a retail broker?
Daniel: We always ask our clients for transparency, and we always offer transparency in return. With transparency on both sides, clients get the best out of what we have to offer and we are able to build longer term, more solid relationships.
At IS Prime, we don’t dictate to clients, we take a constructive approach to client integrations by providing them with a range of options and recommendations, and every single time a client follows a recommendation, we have positive feedback as a result.
