Forex Magnates spoke with Jonathan Brewer and Raj Sitlani, Managing Partners at IS Prime for a detailed look into the institutional sphere and the playing field for Prime of Prime (PoP) brokers. Their full length interview can be read below.
1. What is the impetus behind IS Prime targeting only institutional clients, and not focusing on retail as well?
This is very simple: If I were running a retail broker, it would be out of the question to take liquidity from a partner who is also a competitor. All you need is for one sales person from your broker to meet one of your clients, and they can dis-intermediate you by offering a slightly better deal.
Our aim is to enable our clients to be as competitive as possible in the retail market; this is demonstrably not the aim of a company that is also pitching for the same client base.
There are no other wholesale-only providers of proprietary CFD liquidity that we know of. We are excited about the additional opportunity that this represents.
2. Which type of clients are perceived as most significant? Are a retail broker’s needs different from other players in the institutional sphere?
We pride ourselves on offering a premium institutional service to our clients; this is a legacy of our training at Goldman Sachs. Retail brokers are typically very specialist and as such they have rather specific and sometimes complex requirements, but many of our competitors oddly choose to treat them like retail clients.
Historically, we have been very specialised in servicing retail brokers, but we do not necessarily believe that one particular client segment is more important or significant than the others. Each has its own specific requirements and idiosyncrasies and we will look to cater for them all. This is a particular challenge in our segment of the market, and previously we did not have the tools to enable us to manage our liquidity intelligently enough to be able to service the nuanced requirements of each client type. We have much more powerful technology and analytical armoury at our disposal now, which will work to the benefit of both our clients and our liquidity providers.
It is important to have the knowledge to be able to fulfil the specific needs of this client base, whilst also having service and support levels in line with the best in the finance industry. This rather neatly articulates one of our key mission statements.
3. You mentioned at the London Summit that you also plan on offering CFD liquidity, can you explain the importance of this product and how it compares to existing solutions in the market?
ISAM is a systematic futures fund, which trades every global liquid futures contract. We can leverage this market reach, as well as the industry-leading technology expertise within the fund, to offer a very broad range of markets as CFDs.
We expect that our pricing will compare very favourably with the existing offers in the market, but there are other key aspects that differentiate us –
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- Wholesale only – we will only offer our CFD pricing to Institutional clients, and never direct to retail.
- Flexibility – many of the existing CFD providers have very rigid technology and pricing structures. They also typically have large retail franchises to protect. We will be able to be fully flexible to each client’s requirements because we have new technology and no business conflicts.
4. How does being established by a hedge fund differentiate IS Prime from other competitors? What would you define as your unique offering in the market?
There are several ways that being established by a hedge fund differentiates us from our competitors. The hedge fund industry attracts the smartest minds in finance, which means that we have top-class technology, world-class quants and broad risk management expertise. It can be said that if you are the least smart person in the company then you have chosen the right organisation, and this is certainly the case here!
We both have well-established expertise in the eFX industry which, when coupled with the technology expertise within ISAM, will enable us to provide a highly customisable bespoke service to our clients. We feel that we stand out in this industry on that basis alone. What really excites us and differentiates us, however, is the fact that we now have far more powerful tools at our disposal.
There are too many examples to list in a short interview, but one relevant example is the access that we have to Wall Street-grade flow and liquidity analytics, which will enable us to preserve the interests of both our clients and our liquidity providers at the same time. This is an often overlooked, but highly significant aspect of our capabilities, because it helps us to ensure that our clients have an exemplary execution experience, whilst at the same time protecting our LPs, thereby guaranteeing sustainable consistency of pricing and service.
We are also able to differentiate ourselves further by being able to offer a number of added value services from our partner (and shareholder) that we can distribute to our clients, such as transparent outsourced risk management capabilities, capital allocations to qualifying trading strategies and access to the fund’s order book as a unique “no last look” liquidity source.
These additional premium services will not be for broad consumption but rather will be offered strictly on a case-by-case basis.
5. What goals did you set for IS prime for the short and the long run?
In the first instance our priority has been to ensure that the quality of liquidity that we will show to our clients is of the highest calibre. In parallel, one very strategic goal has been to deploy the very best technology both on the execution/aggregation side and the processing/operational side. Talking to our existing and potential contacts it is clear that robust execution is only one half of the equation.
The focus also has to be on post-trade technology and procedures. Accordingly, this area has been a focus for the short-term. Further down the line our goal is to become the pre-eminent supplier of market-leading aggregated liquidity, a unique CFD provider and the Prime of Prime of choice for the retail broker segment.
6. What challenges do newly launched Prime of Prime providers or boutique investment companies face?
Arguably the lack of track record and financial status of a new entity are always likely to be called into question.
This is often completely fallacial; all examples of financial firms that have had insolvency events in recent times have been on account of trading or operational irregularities or as a result of being highly levered. The larger the firm’s balance sheet, certainly the more likely they are to give out large credit lines, and they are possibly prone to be more lax on the operational and risk management side.
The fact that IS Prime has a very clean “matched principle” structure is in our view a virtue. We do not offer any credit lines, nor do we hold any trading risk. This coupled with being aligned to a $700m market-leading hedge fund with the ‘godfather of hedge funds’ as its CEO more than offsets these concerns.
A further challenge is being able to give clients the confidence that moving or onboarding their business will be seamless, and that the execution and processing experiences will be of the highest calibre. Our experience of working on the migration of some of the largest clearing mandates in Europe during our time at Goldman Sachs has prepared us very well for this side of the business.