Institutions want a single solution for liquidity and execution
Diversification is critical in today’s markets. Richard Elston, Head of Institutional at CMC Markets Connect, explains how this has led to a growing need for accessing multi-asset liquidity via a single connection…
Can you outline the industry trends which have been driving growth and development within your firm over the past year?
We have seen a growing need from institutional counterparties who want to work with a single service provider across multiple assets and instrument types. This appears to have been driven by factors including a better understanding of value, with counterparties more than happy to pay for quality customer service rather than just focusing on headline price. And in a sector where risk controls are ever more important, performing a single set of due diligence checks then having a unified reporting structure is again a key USP.
How have client needs and demands changed what has your response been in terms of your service offering?
The last few years have seen a significant uptick in demand for trading physical equities with many new arrivals joining the market. The number of providers offering access has grown rapidly and clients have made it clear they are willing to pay a premium to receive a quality service when it comes to this asset class. On-exchange products are significantly more complex and as such more costly to manage than their over-the-counter equivalents. To respond to this demand, we’re ramping up both the number of equities we offer and the range of markets we quote from, all of which can be delivered to institutional clients via a white label solution or across an API feed.
Have you observed regional differences in client demand? What is driving these?
The regional differences tend to be rather nuanced given the global nature of this market, although a couple of standout factors are in play right now. In the wake of the COVID pandemic, there has been a notable reorganisation of the way financial business is undertaken in South East Asia, with work gravitating towards Singapore and to a lesser extent Tokyo.
Clients are using this as a catalyst to revisit existing working relationships, something that we’re seeing play towards the one-stop-shop ethos. We’re also noticing an exponential increase in demand from institutions in the Middle East, with the region gaining traction as most working weeks are now aligned with those of the rest of the world and local operators look to broaden their asset universe.
What is your outlook for the hedge fund space for the coming year and how is your firm best placed to support clients navigate the environment?
We’re noticing a real requirement especially among proto hedge funds demanding this multi-asset accessibility. Investors in these funds are well aware that traditional valuation models are looking overblown after a decade and a half of ultra lax monetary policy, and while we’re now seeing the start of a normalisation of interest rates, those managing money are more likely to be demanding flexibility as to how they deploy those assets.
Could any shift or change influence the potential growth in the industry?
We see evolution all the time and it’s our responsibility as a provider of both liquidity and execution solutions to ensure we can respond quickly and efficiently. Time and again it has been laid bare that there’s always a workable outcome to be had, but in 2023 perhaps the biggest risk here comes from alternative assets. We need to include cryptos in that cohort as a consequence of there being no single centralised market to derive valuations from and given there’s a more aggressive regulatory narrative emerging against the asset class then that’s something to watch – although it’s unlikely to be of any long term consequence to investors, with issuers of coins and tokens, plus ‘exchange’ operators far more likely to be left exposed.
Richard Elston, Head of Institutional, CMC Markets Connect – Richard joined CMC Markets in 2015, having worked for several other major firms in the sector and over the last eight years has been responsible for driving significant growth for the institutional division of the business. Richard’s team is headquartered out of London, with dedicated institutional staff members also based in Sydney, Singapore, Shanghai, Dubai & Frankfurt. The client list that has been built under Richard’s tenure now spans the globe and includes other brokers, money managers, hedge funds as well as a number of banks.