Q: Could you tell us a bit more about CMC Markets’ strategy for the institutional business? For a long time we have held a perception that CMC was a very strong retail service provider, certainly in the UK and Asia. What should we expect from the CMC Markets Institutional offering?
A: You are correct that CMC Markets already has a very strong reputation as a retail service provider and that will certainly continue to be the case. What our institutional business does is leverage those strengths - and then take them further. Our combination of strong institutional relationships with tier one banks, high levels of working capital and a strong internal liquidity pool means we can provide a true value-add service to other banks and brokers.
This is nothing new - we have been successfully working with institutional partners for a number of years - but it is a service we continue to enhance, allowing our counterparties access to tighter spreads and better market depth - via API connectivity as well as using our white and grey label platform offerings.
Q: How is the retail side of business factored into the institutional service for your liquidity offering?
A: Having a large retail book alongside access to other pricing sources allows us to create our own liquidity. In this respect, CMC Markets is now seen as a liquidity maker, setting us apart from others who only recycle and pass through underlying bank liquidity.
As a result, CMC Markets is able to construct its own pricing, which is often supported by better underlying market depth. This can be especially advantageous for a broker who already has access to a bank feed and is looking for additional avenues to add to their pool. What’s more, it also enables exposure to other assets such as indices, commodities, or shares, all of which can be accessed via a single broker relationship.
Q: A point I would like to raise is that there has been a lot of use of the phrase “multi-asset” among many professionals in the electronic trading industry lately. For certain, many retail brokers consider it important to expand the product offering for their customers. Nevertheless, what does the phrase actually mean to you and how does it reflect the services that you are offering at CMC Markets Institutional?
A: To me, the phrase ‘multi-asset’ is instrument-agnostic but means the ability to offer a wide range of different asset classes, a proposition which is markedly different from those brokers who just focus on a handful of FX pairs.
So whilst the vast majority of our products may be quoted from a CFD, it’s the fact that we offer clients access to indices, commodities, treasuries, currencies and single stocks that deems us a multi-asset provider. So it’s through our institutional division that we can facilitate access to this same range of assets for others.
What that means is those institutions – be they brokers or funds – who work with us, get access to a far wider range of products, allowing them to meet the business need. Whether that’s a fund wanting to shift its strategy into a new asset or individual clients asking to trade something like a specific tech stock, this is where the CMC Markets offering excels.
I also believe that this diversification into different CFD instruments will lead to a wider move by the industry into true multi-asset product ranges. A number of brokers are already in or moving into this space. At CMC Markets, we have a full stockbroking service for example.
Q: You mentioned stockbroking and I agree, there is demand from retail customers to trade such CFD instruments in the form of single stock products. It would be interesting to hear from your perspective as to which subsets of single equity CFDs are most popular today, given the events of 2020?
A: The big technology names in the US and China are by far the most popular instruments for equity CFD traders with the likes of Tesla, Amazon, Apple, Tencent and Alibaba regularly featuring in our top traded products.
Given the events of 2020 the other subsets of the market which are the most popular have swung widely, not least given the flexibility CFDs have when it comes to offering short as well as long exposure to an asset. As an example, if you had asked me this three to four months ago, I would have certainly said that clients had been piling into gold stocks as COVID relief packages were announced across the globe.
Now it has really changed as news about the vaccine has filtered through, and clients have begun buying stocks they think are undervalued especially in the travel sector.
Q: There have been several notable market events this year, partly due to the Covid-19 pandemic. These events have affected both retail OTC and exchange listed FX, CFD and commodities markets, with Gold and just recently, equities being in very high investor demand. Can you tell us how CMC Markets Institutional handled these events from the sell-side given your customer’s needs during these times?
A: Yes it has certainly been a challenging year for the market with various scenarios testing system capabilities and market liquidity.
As you mentioned, Gold was a particularly interesting product as we saw spreads increase dramatically, making price discovery difficult for many in the market
Fortunately CMC Markets has direct links to the interbank spot market, along with liquidity from our retail book as well as direct access to futures exchanges, allowing us to continue pricing during this period. The spot market was particularly affected, so we found a number of existing and new clients who had never previously traded or accessed the gold futures market coming to us in order to trade these contracts.
Q: Going back to the concept of “multi-asset”, some retail brokers will add a handful of products from a few asset classes that are gaining popularity, while others add hundreds to their trading platforms. What can customers expect from CMC Markets Institutional regarding product choices when making such decisions?
Brokers need to find the right balance because there can be a point at which adding more and more instruments can simply just be adding further administrative and cost burdens.
CMC Markets can offer an insight into which products produce the most demand outside of the range that a broker is already offering. Also, we have the ability to offer bespoke pricing packages to suit clients’ needs so that they can focus only on the products they want.
Q: Your own focus is primarily on the APAC region. Can you give us some insights into what regional customers are looking for when choosing an institutional partner, and how CMC Markets Institutional has been able to accommodate?
A: APAC clients at the moment are really looking for a provider which can help them with the expansion of their business into different markets. In addition to this they are very diligent about where their money is held so working with providers in a strong financial position is a must.