Retail and Institutional Overlap: 3 Key Take Aways from the IG-PrimeXM Deal

The deal is illustrative of a growing appetite for retail brokerage services and technological solutions amongst institutions

This Tuesday, IG Group (IG), a major player in the retail trading industry, announced that it had formed a partnership with PrimeXM. The partnership will see IG joining PrimeXM’s XCore community of liquidity providers.

PrimeXM provides a number of technological solutions, including analytics, reporting and risk management products, to the trading industry. XCore, which acts as a liquidity aggregator for more than 120 firms, is one of the company’s most popular products.

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As a result of gaining access to XCore, IG will be able to increase its liquidity distribution capabilities. It will also allow the firm to operate across PrimeXM’s low-latency network, improving trading speeds for clients.

From XCore’s perspective, the partnership represents additional liquidity for its service offering. Just as IG will be able to access new sources of liquidity, existing clients will be able to access the liquidity generated by IG’s brokerage efforts.

Although today’s announcement was brief, it was indicative of a number of current trends in the retail industry that are worth discussing. Market saturation and technological developments are combining to reform the industry along with new lines.

The partnership announced today is illustrative of three of these reformations and, as we so love to provide our dear readers with the most up-to-date insights, we shall discuss them here.

In a saturated market, technological change helps brokers stand out from the crowd

It’s no secret that retail clients, especially in Europe, are faced with a glut of brokers to choose from. From big players such as CMC Markets or IG to the smaller brokers offering white label products, consumers have a plethora of choices when it comes to finding a broker to trade with.

This is not in itself a bad thing but, unfortunately, there is often little to nothing to distinguish between firms. As noted, many brokers simply use white label technological solutions and then attempt to sell a very similar array of financial instruments to their clients.

Even if a firm does offer a larger array of instruments than its competitors, this is often not apparent to the casual observer. The average peruser of the internet, with a goldfish-like attention span (the author counts himself as such a peruser), is unlikely to see beyond the instrument’s category, whether it be FX, contracts-for-differences or cryptocurrency.

In a recent interview with Finance Magnates, B2Broker’s CEO, Artur Azizov, pointed out that, as a result of this state of affairs, brokers have largely been left with two options to attract clients – better customer service and superior technology. Today’s announcement shows that IG, undoubtedly alongside efforts to improve its customer service, is attempting to bolster its technology to attract new clients.

How successful these efforts will be in attracting new clients is unclear. Though existing clients may feel any positive knock-on effects of the deal, it is unlikely that the average retail trader would fully comprehend the benefits that the partnership between IG and XCore would bring to them.

As such, one would imagine that the partnership, aside from strengthening the services it provides to clients, may be aimed at attracting institutional clients. This speaks to another one of the developments in the retail industry – a growing appetite for retail brokers’ services amongst institutional bodies.

Retail brokers are serving more and more institutional clients

Although there has never been a definitive line between the retail and institutional broking industries, it was certainly more clearly defined than it is now. Brokers that started out as purely retail enterprises are now devoting a large proportion of their resources to gaining institutional business.

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Just yesterday, CMC Markets released a document which clearly shows that it has ramped up its institutional business development efforts. In its annual financial report, the firm noted that it had increased institutional revenues to $41.65 million, up by 38 percent from the previous year.

Other brokers have also suggested they will be making forays into the institutional space. In an interview with Finance Magnates this May, ITI Capital’s CEO, Max Hayden, stated that the firm hopes to expand the level of brokerage services it offers to institutional clients.

The partnership with PrimeXM will enable IG to expand its institutional operations. The companies that make up PrimeXM XCore’s client-base are not limited to retail brokers. Its liquidity network is accessed, for example, by tier-1 banks and prime brokers – key players in the institutional space.

That these institutional players feel comfortable using PrimeXM’s technology is itself illustrative of another industry development, the growing ability of retail technology providers to scale up their services for institutional clients.

Retail technology providers can work in the institutional space

A part of the reason retail brokers can expand into the institutional space is purely to do with numbers. Brokers have a sufficient number of traders, such that they can handle the demands of institutional firms.

Another, perhaps more important development, is the scalability of technology. Reducing costs and improvements in underlying technology, mean that providers, such as PrimeXM, are increasingly able to provide their services to the institutional market.

For example, in the past few months oneZero, another major technology provider to the trading industry has significantly bolstered its institutional offering. In April of this year, the firm announced improvements to its liquidity hub aimed at attracting more institutional clients.

Just two months later, the firm brought in Philip Weisberg, formerly Head of FX Trading at Thomson Reuters, to aid the firm’s institutional expansion efforts. This was followed last week by a partnership with B2C2, a cryptocurrency liquidity provider to institutional firms.

PrimeXM has also been strengthening its institutional capabilities over the past 12 months. Last September, the firm announced that it had formed a partnership with Tickstarter, a trading systems integrator, to provide institutional-grade connectivity to hedge funds and prime brokers.

Significantly, technology firms such as oneZero and PrimeXM have not been making these efforts at institutional expansion at the expense of their retail business lines. Instead, they have simply been able to attach institutional clients to their networks without any drastic changes to their business models or improvements to their technology.

A little says a lot

IG and PrimeXM’s statement today may have been intended as a simple press release, but it says a great deal about the industry as a whole.

A densely packed market, with a high degree of homogeneity in companies’ service offerings, means firms such as IG have to make these sorts of partnerships, and the consequent technological improvements, to stay ahead of the pack.

Aside from bolstering their service offering, the partnership also illustrates that retail brokers are no longer solely confined to serving the ‘average joe’ but also institutional clients. Technological improvements, combined with a large client-bases, have enabled this to happen.

These improvements also mean that technology providers, as a result of reducing costs and more fluid integration with existing systems, can easily expand their service offering to institutional clients.

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