I have been in a financial technology company for slight less than a year. During this period, I have spoken with many people who are keen to be in this business. Many amongst them when thrown with hard facts, almost always eventually discover that they lack many resources to be able to run this business.
Through many years of experience that our company’s had in this field of work, the saddest thing to see for a new broker dealer, is the case where they just had their trading platform setup, and the directors of the company put the project on hold. Another type would be those who after running the brokerage operation for a short while, the leaders in the company decide to fold the company. The last group would be those more focused operators who know their target market and customers. So which profile type of CEOs, or leaders, are more inclined to be successful in this business? Below are some thoughts and feel through my personal experience.
1st Type Profile: Traders
People make a living by trading. Skilled, strategic, with a risk taking mindset. They tend to lack in marketing skills. Success would greatly be enhanced if they team up with competent partners in marketing or sales. Typically, the “Trader Profile” broker dealer prefer to setup their trading platforms with spread markups from Liquidity Providers’ prices.
2nd Type Profile: Asset Managers or Money Managers
These people manage a certain number of clients’ monies or assets. Their role is necessary as they are a big liquidity contributor to the global markets, and their responsibility is to let money work harder for their clients. Determining rate of return, and measuring degree of risks are parts and puzzle of their business. Many money managers feel that in order to to access clean market liquidity, going through an intermediary broker does not make sense, thus escalating their risk. Therefore, many asset managers have chosen to create their own trading platform so that they could eliminate the counterparty risk they to deal with the broker, and going straight to the liquidity provider for market liquidity through their own branded platform. Reduce counterparty risk, and control on the platform’s connectivity, stability and security. Through the platform setup, the asset manager stand a chance to generate new income as a broker/dealer.
3rd Profile: Introducing Brokers
Introducing Brokers also known as IBs, are usually freelance sales for a certain branded platform. Most IBs help promote and make introduction to other platform users for the company they represent. For the more committed IBs, they have sales teams and could have acquired a certain number of stable customer following them. Through the IB commission infrastructure and their reward systems, the IB receive their sales income through commissions and bonuses. Over the years, companies with bad practices has caused the regulators to come down hard on both IBs and brokerages. Influential IBs become very cautious about passing their clients’ risk to brokers. The IBs are faced with the risk of managing both market risk (black swan event) and counterparty risk, where they are afraid something happening to the broker dealer they are partnering with.
For the well-established IB, running his own branded platform is just a matter of time. They are equipped with their own sales team, sales technique is also established, and they would probably have a mature customer base to start and start their business. Listening from ex IBs turned brokerages, many have yet regretted owning their own white-labelled trading platform. With their own trading platform, they could now customize commissions and market spreads, and at the same time, they no longer need to worry if they will receive their rebates in a timely manner. They are clear and assured about how their clients funds are managed and kept safe. They are also in control of the hardware, and will prevent issues like unexpected platform breakdowns