The provision of liquidity to FX brokerages worldwide from a long-established base among London’s financial markets heavyweights is undoubtedly the definition of reliability.
Indeed, London’s financial center is catching the attention of many large retail and institutional brokerages, technology providers and liquidity providers, with some extremely high value transactions having taken place recently involving the purchase of City Index for $118 million by GAIN Capital and London Capital Group having received a cash injection of £17 million from Charles Henri Sabet, who has such great confidence in London’s future that he personally paid £227,500 of his own money to buy shares in the company last week.
Sucden Financial retains a low profile, as steady and constant as ever, providing liquidity solutions to broker partners worldwide from its eFX division which hosts around 200 staff.
Recently, Peter Brooks assumed his new position as Head of eFX, at a time during which Sucden Financial’s corporate fortunes within its eFX division are at a high, with a substantial 91% increase in volumes having been recorded for the third quarter of this year compared to the same period last year.
In order to detail Sucden Financial’s perspective on the current institutional FX landscape, LeapRate spoke to Mr. Brooks on many current and poignant subjects, commencing with an insight into Mr. Brooks’ background in the FX industry. “My career in this industry began back in 1993 working for Gerald Metals” explained Mr. Brooks.
“I was exposed to all asset classes there, which gave me a great foundation for which I still rely on to this day” he continued. ” I progressed onto the LIFFE floor until its closure, and then sought a broking opportunity at Credit Lyonnais Rouse/Caylon Financial. I executed and serviced Institutional clients trading in cash equity and CFDs. When I was approached by Landsbanki to set up a Capital Markets team I jumped at the chance. This gave me an insight into what is involved in order to build a successful and profitable team. We grew from 3 to 30 people in a very short time, offering CFDs, cash equities, structured products, fixed income and FX solutions to Institutional Clients.”
“I joined Sucden Financial in January 2009, heading up the Equities division. My role grew to facilitate clients using our multi-asset class platform. I progressed into the role of heading up our eFX Coverage team where it was my job to manage all clients using our technology. We remain focussed on building strong partnerships with our clients” continued Mr. Brooks.
“In the age of technology it is easy to forget about relationships, so it was my goal to forge strong collaborations with all of our clients. After 5 years in this role I gained extensive knowledge of the FX market. Because Sucden Financial offers a wide range of bespoke solutions to clients, I have been exposed to all aspects of the eFX world.”
Mr. Brooks recently assumed the position of Head of eFX, however he has been at Sucden Financial for six years. It therefore is of interest to discover what Mr. Brooks initially sought to achieve and how he set about it. “My initial role was to expand the Equity business at Sucden Financial, then progressing into eFX whereby I was asked to manage the eFX coverage team. This area has grown extensively over the years along with our client base” said Mr. Brooks.
With LeapRate wishing Mr. Brooks well in his new position as Head of eFX, the subject moved toward discussing the path that Mr. Brooks took from Head of eFX Client Coverage to his new leadership role, and how, at a time of high volatility and good prospects for all FX firms, he planned to progress this sector of the business. “As discussed earlier, being Head of the eFX coverage area has put me in good stead for my new role” concurred Mr. Brooks.
“It gave me the opportunity to enhance my product knowledge and gain a full understanding of our clients’ needs. We have restructured our team at Sucden Financial with the ethos of team spirit very much in mind. I am well aware that you are only as good as the team around you, and with that in mind we have made some very key and exciting signings. The e-FX world is evolving all the time and we work closely with our key partners in order to meet our clients’ needs and expectations.”
“Volatility has certainly increased compared to earlier this year, but we are still far off market norms and so we continue to believe there will be further consolidation in the market and fierce competition for market share amongst existing players. This will continue the current trend of profit margins being squeezed amongst Prime-of-Prime brokers like Sucden Financial, at a time when regulatory costs are on the increase. As a result, we believe more established firms like ourselves, who already have a very strong infrastructure and balance sheet, with an economies of scale advantage, will probably benefit in much the same way as the larger players have taken over in the US market.”
“At the same time, with spreads and commissions being pushed ever lower, it will become harder to differentiate yourself in this area alone. We have foreseen this for some time and so have been investing heavily in technology that will allow us to better meet the needs of our clients. For example, although our eFX business is 100% STP, we want to provide our clients with the ability to manage their risk better, since clients are looking at ways to maximise the yield from their flow in a lower volume environment. Our new offering, which we have been working on with Integral, will provide our clients with bank grade risk management tools and the ability to cover positions more efficiently.”
In terms of providing liquidity to brokerages worldwide, Mr. Brooks explained how he envisages the requirements of liquidity takers changing as the A-book model becomes dominant, and firms such as FXCM concentrate on non-dealing desk models with no spread. “We have not necessarily witnessed a move in one direction towards A or B book practices” he revealed.
“Our conversations with brokers have highlighted examples of brokers who were only doing A book, but are now looking to take risk and some who are mostly B book looking to go 100% A. This has actually been driven by difficult market conditions, with pure A book brokers looking to increase the dollars per million return in a lower volume environment and B book brokers looking to stabilise big swings in P&L. Even the likes of FXCM, who operate a no dealing desk business have acquired Lucid, a market making business, thus showing they see the need to have both A and B book capability. As a result we believe it is important to firstly have the flexibility to help our broker clients run both an A and B book model and to help them understand which flow they should be allocating to each book. As well as currently being able to analyse our clients’ flows, we will soon be releasing technology that will empower our clients to do this themselves.”
Understanding LeapRate’s position on this, Mr. Brooks continued: “You are right that the requirements of liquidity takers will probably change further. Sucden Financial has seen a trend towards increased customisation of liquidity for our clients. There are now so many entrants into the Prime space, but many of these are entering with lower grade technology, that struggles to deal with the complexities of flow.”
“For example, the surge in popularity of copy trading has meant we have seen the number of trades over data or news announcements increase from thousands to tens of thousands a second in the last year alone. We have found that only the best-of-breed technology is able to handle this sort of flow. In addition we constantly receive requests from both existing and new clients to tailor their liquidity. Examples of this might be adjusting the size of the top of the book, depending on a client’s normal trade size, and adding in new specialist feeds to cope with more toxic flow. The technology we use allows us to do this.”
Being a long-established company with a vast and strong tradition as exchange members in commodities and metals, it is of interest to ascertain as to whether Sucden Financial’s experience in traditional asset classes, along with its stability, translate into the ultra-modern world of electronic trading and maintaining relationships with retail brokerages. “Having been in business for over 40 years, Sucden Financial has witnessed and weathered so much. New markets, new products, booms and busts. Competitors have come and gone and trading floors have opened and closed” said Mr. Brooks.
“Most significantly, we have seen the steady evolution of exchange traded products from voice to electronic. We have been part of this evolving process, as members of many exchanges ourselves, contributing to their development and building our own trading platforms and back office systems. Our experience in exchange traded products showed us the future of the FX market, highlighting the opportunity we have capitalised on to build our 100% STP eFX business.”
“We know what it takes to build a business based around technology and also how to maintain it for the longer term. Strangely, in a world of supposed state of the art technology, we believe it’s actually more than ever about building real relationships with people. When technology functionality, speed and pricing become ever more homogeneous, it’s the interactions between us and our clients that make the difference for the longer term. Clients are less likely to switch for a dollar, or for a tenth of a pip, but more so because they can work with people they trust and who fully understand their business needs.”
Sucden Financial has been extremely successful in gaining order flow from the Asia Pacific region, and in particular Hong Kong. Mr. Brooks depicted the company’s plans to penetrate other regions, and whether it is active in mainland China, and Russia with its increasing demand for ruble liquidity and ever evolving trade relationship with China. “Sucden Financial has been active in Russia and China for over a decade now” he said.
“Our Russian office, opened in 2007, was a natural extension from our parent company’s existing business and our Hong Kong office, opened in 2008, provides us with an excellent stepping stone into China. Whilst the Sucden Group has offices in 30 locations around the world, Sucden Financial does not have any immediate plans for further expansion in these areas; however we keep a keen eye on potential regions which may present interesting opportunities. The globalisation of financial markets, coupled with modern communication systems has made it easy to service our institutional client base from our current locations, without the need to duplicate resources.”
When operating a sales team which works on a purely business to business basis, it may be worthy of question as to how Sucden Financial can ensure that it maintains an edge over other companies in London with other USPs such as LMAX, and the newly acquired City Index, which GAIN Capital may begin to position as a B2B liquidity provider. “When comparing Sucden Financial to these particular companies, we feel that clients come to us because we do not provide our liquidity directly to retail clients. This is an important differentiator, which means clients are more comfortable working with us. Why help your competitor, by giving them your business and increasing their profitability, so they can invest more to gain an advantage over you? It just doesn’t make sense.”
“However, we know there are others out there that are solely B2B and what we tend to compete on is the strength of the liquidity we offer, which comes as a result of the established relationships we have with our banks’ LPs, most of which we have direct lines with as a result of working with them for decades, which is pretty rare. What this actually means for Sucden Financial’s clients is that they get excellent pricing and execution, which leads to many of our clients coming to us via recommendations from other clients and technology providers.”
With providing liquidity to retail FX brokers being only part of Sucden Financial’s eFX business, it would be interesting to detail other aspects of FX which Sucden Financial participates in. On this basis, Mr. Brooks confirmed that “The core business of the firm for the last 40 years has been futures, with a focus on commodities.”
“Sucden Financial originally started off in 1973 with 6 people as a sugar futures broker, quickly expanding into the full soft commodity offering. In 1978 we became a founding member of the International Petroleum Exchange (IPE) and thus began offering energy products. Shortly after this, at the start of the 1980s, we also started offering FX to our institutional and corporate clients, who had currency exposure as a result of their futures business. In 1994, Sucden Financial became a Category 1 ring dealing member of the London Metal Exchange, and to this day still have one of the largest teams on the last remaining open outcry trading floor in Europe.”
“Since then Sucden Financial’s business has grown from strength to strength, with our expertise in commodities proving invaluable in growing our business globally, especially in Asia, allowing us to spread into bullion, equities, bonds, CFDs and even fund management. Today Sucden Financial provides access to major global exchanges, many of which we are members of and employs around 200 people, while the Sucden Group employs over 4000.”
Sucden Financial retains a voice FX team, thus how this fits in with the overall eFX department, and how voice FX will evolve post EMIR regulation implementation is a matter for clarification, on which Mr. Brooks explained “Sucden Financial’s FX Voice team is a separate, but important component of our overall business. The main client base still consists of many of the physical players that make up the core of our business – miners, fabricators, plantations, manufacturers and so on.”
“However, over the years, the business has evolved to include other brokers, particularly deliverable FX brokers, funds and any large corporates with exposure to currency risk as part of their day-to-day business. The voice team provides the value add for those clients that really need to speak to someone who understands their business and can take the time to discuss the various products available to them, as part of their hedging strategies, including spot, forwards, swaps and options.”
Sucden Financial has managed to maintain a high quality team in its eFX operation, which, contrary to many companies in the FX industry, has managed to retain its staff for long periods of time, with a very low staff turnover rate. Mr. Brooks explained to LeapRate what he considers to be the key to this, and his view as to whether it ensures high quality of service. “Our CEO, Michael Overlander was appointed to the board of Sucden Financial over 20 years ago and many other people at the firm have been here almost as long. The Head of the FX voice team has been with us for 15 years, for example. Sucden Financial really tries to promote a family ethos and that’s probably why so many people have stayed for such a long time. It really is important to ensure the long term stability of the company and make clients feel like they have continuity and trust in us as a company.”
Sucden Financial’s traditional means of doing business has helped the company enjoy a very quiet profile, with very few ups and downs, and very few newsworthy events. Whether Mr. Brooks attributes this stability to its long established nature, or to the business model which the company operates in terms of maintaining a low profile is an interesting conundrum, especially in an industry whose large companies continually report on their developments. “Sucden Financial has been established for over 40 years, formed in 1973 as the brokerage arm of our privately-owned parent company, Sucres et Denrés (Sucden). Whilst we are well known and regularly quoted within the commodity media, we remain fairly low profile in the mainstream media, largely due to our finely balanced business model, including stringent risk management, a strong and highly experienced CEO at the helm and the fact we are well-established” stated Mr. Brooks.
“This market really has always been about personal relationships and the mainstream media has never been seen as an effective way to promote our business, until more recently.”
As Sucden Financial concentrates on print advertising rather than online, and focuses on commodity companies, this is an interesting and unusual matter. This expertise and methodology may translate differently into the very online world of FX compared to in other industries. “Sucden Financial is starting to change its approach to the online world advertising and social media. In 2014 it’s twitter feed was listed on The Wall Street Journal’s ‘50 Financial Twitter Feeds You Must Follow’ list and since then we have more than doubled our number of followers and have a much stronger presence on LinkedIn. The eFX team has significantly increased its marketing spend in the second half of 2014 to include online campaigns and we plan to do so even more in 2015 and beyond” said Mr. Brooks.
LeapRate considered that concentrating on order tickets of $500 million and up which have to be split may be a difficult task in terms of execution. On this basis, Mr. Brooks sought to clarify the matter: “Our voice desk specialises in dealing with very large ticket sizes, often exceeding $500m, particularly from fund clients. This sort of trade would have an enormous market impact if sent in one go. Executing this kind of trade whilst keeping your client happy with the fill and not upsetting Liquidity Providers is a real skill, which is why have a Voice FX team of 8 people, with a combined experience of almost 100 years in the FX market.”
As far as the year ahead is concerned, Mr. Brooks revealed that “I’ve outlined the main plans when it comes to technology and hiring new people. Ultimately the eFX team at Sucden Financial has been very successful over the past few years, with our volumes in particular growing very strongly in recent months and almost doubling from a year ago. Having taken control of the eFX business, I am keen to make my mark and will look to invest heavily in order to take the business to the next level and continue to experience and exceed the level of success we have experienced in previous years.”