A Year in Review: The challenges with the B-book model
Nikolai Isayev
This year we’ve seen a decline in general market volatility compared to the last two, three years. For brokers who are perhaps having difficulty monetising client flow during these periods of market inactivity, what strategies do you think could assist them in improving these types of metrics?
Lochlan White
Yeah, look, it’s been an interesting year where a lot of brokers have been asking us how everyone else is going, which is generally not the sort of question that gives us a lot of confidence that they’re necessarily doing well.
But it’s no secret. It’s been a tricky year. I think we’ve been quite fortunate where what it’s meant for the market and for Prime of Prime brokers is that they’ve picked up quite a lot more volume throughout the year. Naturally, they’re trying to hedge quite a bit more and try to reduce their revenue volatility. And what that means is the percentage of externalisation to Prime of Primes, liquidity providers or even Tier 1 bank prime brokers has dramatically increased. What that ultimately means is there’s less of a focus on internalisation and more of a focus on cost reduction.
So what these retail brokers are ultimately looking for is the best possible, most stable price at the best spread, the lowest commissions, the most competitive swaps and all around the lowest cost liquidity solution. And that’s what I think that we offer. There’s many other great Prime of Primes and liquidity providers here in this room today, but I think the difference that we have alongside a few others is we’re a true Prime of Prime.
We have multiple Tier 1 prime broker bank relationships and there’s a fragmentation of the liquidity market where there are sub Prime of Prime brokers as it’s been termed, beneath the true Prime of Prime level. The closer you are to the the top of the ladder generally, the better price you’re going to get, the lower cost. And I think that’s one of the main things that a lot of retail brokers have been looking for this year. We have had a massive influx of interest.
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