Does a broker need a dealing desk any more? That is the question as corporate synergy amasses in the prime brokerage and risk management sector between two household names
Today represents a further example of the direction toward consolidation of specialist companies within the institutional FX sector, this time manifesting itself in the form of the risk management unit of IS Prime, IS Prime Risk Services Inc, acquiring the assets of renowned North American risk management service providers for brokers, Think Liquidity.
In keeping with FinanceFeeds predictions for 2017, this transaction represents a further example of the rise of the non-bank prime brokerage and liquidity provider, as well as the FX industry’s remit in continuing to expand via mergers and acquisitions in order to encompass a fully comprehensive commercial structure.
Today, FinanceFeeds spoke to Raj Sitlani, Managing Partner at ISPrime in London, in order to take a close look at the acquisition and the rationale behind adding this highly valuable string to its already multi-faceted bow.
Why did we feel that it was worth buying the assets of Think Liquidity?
It has become increasingly clear to us that many retail brokers are seeking to improve the way in which they internalise their flow. Think Liquidity has built an exciting suite of risk management products which are available to brokers of all sizes to help them better manage their risk. These products, together with Jeff Wilkins and his team, caught our eye and we decided to go ahead with the purchase of the assets to allow us to cater for our clients’ ever-increasing demands.
What synergies do you see?
Our typical client on the Prime of Prime side of our business is a retail broker. Whilst we have a very good understanding of our clients’ businesses, we have always been one step removed from their risk management processes. If we now have a set of products to offer them which will enhance their risk internalisation it means that we become closer to them and can understand their modus operandi that much better.
On the other side of the coin, Jeff and his team will have access to our technology resources to help further build out the products. Should any client express an interest for liquidity services, IS Prime could be called upon.
How can we expand the range of services that we can offer clients? What gap has this strategic initiative filled?
We have long maintained that being a Prime of Prime means having unrivalled risk management technology and processes. We have built a very solid reputation as a leading Prime of Prime, largely as a result of the quality of people and technology we have put together.
This initiative will allow us to offer new products to our existing clients and to have the comprehensive risk offering that more and more retail brokers are looking for.
Will the businesses be fully integrated and bundled or will they run in parallel or as complementary businesses?
The reason why we have entered into this transaction is because we see great synergies between the two businesses, and as such there will naturally be a process of integration between the two firms.
I suppose that we can summarise by saying that we intend for both businesses to leverage the respective services and expertise of the other, but that both services can operate independently of one another.
Think Liquidity already has extensive experience in dealing with liquidity providers such as IS Prime, therefore the businesses can operate on an entirely standalone basis without affecting their existing service levels. There will be some clients that will require for us to operate with a Chinese wall between the two operations, and we will ensure that this requirement is respected and catered to
Does a retail broker need a dealing desk?
This entirely depends on the broker’s model. I do believe that it is a great challenge for any retail broker to run a fully optimised dealing operation, and whereas we were previously confined to only contribute to the efficiency of a client’s hedging activity once they had decided to externalise risk, we are now able to use our expertise and technology to help a client to optimise both their A and B book procedures.
The process of running an effective dealing desk is essentially a process of analysing data in an efficient way to determine optimal outcomes. Data analysis is at the heart of everything that the ISAM Group does, and we are very excited to be able to offer a client profiling tool called Quantview, which gives a dealing desk a very simple, reliable and effective way to empirically quantify a given client’s trading style and to make hedging decisions as a result of this analysis. This product is relevant to literally any broker that is taking risk.
For brokers who do not have the experience or expertise to run an optimised dealing operation for themselves, we are able to provide a fully outsourced dealing operation, or to actively consult the existing dealing desk to help them to optimise their processes.