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Technology provision


Andrew Ralich, CEO at oneZero, comments on what needs to be got right from the start. He says, “From a technology perspective, it’s very important for a broker to choose the right providers from the beginning. More and more brokerages are opting to outsource their technology in order to focus more on their core business and marketing. It’s critical for a new broker to consider how their technology provider will grow with them, and whether or not they are using a true technology provider or a hybrid brokerage/technology firm. Many ‘low cost’ or ‘turn key’ solutions end up creating a ceiling of control and flexibility that may be very difficult to break through as a broker grows,” he warns.


Yet setting up a brokerage firm in a market environment that is seen as ‘almost saturated’ requires more than ever specific focus on distinctive value propositions for competitive differentiation, observes Ralf Behnstedt, managing partner at FXA International. “Business and process items that are pretty much standard in every brokerage firm will not bring new clients on board. But there are quite a few items that a lot firms are outlining as business values, but that are difficult to deliver. Among those is, for example, a proper Introducing Broker strategy, proper business process and IT white label strategy and solution, or pre and post trade services.”


Regulation


Meanwhile, Stephen G. Leahy, president at Capital Markets


Access Partners, comments that regulation is the primary troublesome hurdle for start ups: “Regulation and capital are the primary barriers to starting a Margin Trading Products (MTP) brokerage (we define MTP as spot FX, CFDs and futures contracts). Tere has been a period of regulatory arbitrage whereby firms were opening up in lightly regulated jurisdictions, but we see those opportunities shrinking as the industry matures. We believe that regulators across the globe are inching closer to a level of cooperation never seen before and that the vast majority of the industry will fall under registration and regulation restrictions closer to those of the more developed regulatory regimes.”


“Tat leaves capital as a barrier,” continues Leahy. “Te increasing need for capital in the primary jurisdictions and increasing volatility of the markets mean no matter if a broker uses an STP model, a traditional dealing desk model, or a combination of both, there is a greater need for capital. An STP business model creates a higher return on equity to the brokerage ownership, but even STP brokers have increasing need for regulatory capital. Similar to the increased regulatory need for capital, the operational need for capital means that there are fewer and fewer firms gaining a larger portion of the market for MTP trading clients.”


Dr. Stelios Platis, managing director at MAP S.Platis, agrees that regulation is an issue: “One of the main hurdles for start ups is dealing effectively with the required regulation. On the other hand, being regulated in a respectable jurisdiction is a


Doron Cohen


“Partnering with an IT solutions company that offers not only a true turn key solution but also a one stop shop for all the necessities required to start a brokerage, is the ideal way to minimise the obstacles in starting a brokerage firm.”


proof of one’s ability to safeguard clients’ money, providing best execution to one’s clients, handling clients’ requests and even guaranteeing an amount in case of bankruptcy. And this has unquestionable marketing value.”


“However, being regulated also implies an important cost not easy to bear by some start ups,” continues Platis. “Furthermore, regulation restricts (especially to non-experts) some aspects of marketing and even profit making. Tis leads to a common mistake, which is to first try out the business without regulation


INSTITUTIONAL FX SERVICES - THE BROKERS HANDBOOK 2012/2013 | 23


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