If you want to discuss the retail trading industry, there probably isn’t a better person to speak to than Peter Cruddas. After founding Currency Management Corporation in 1989, the CEO of what is now CMC Markets oversaw the creation of one of the first online trading platforms and may have conducted the first FX transaction ever made on the internet back in 1996.
Four years later, as the world was celebrating the new millennium, Cruddas’ firm started offering contracts-for-differences (CFDs) to retail clients - a product now ubiquitous amongst brokers. Fast-forward another eighteen years, and CMC Markets offers over 10,000 instruments and has fourteen offices spread across the globe.
But as our readers know well, the retail industry is, to paraphrase that cliched Chinese curse, living through interesting times. Since the European Securities and Markets Authority’s (ESMA) regulations went live in August, we’ve seen reduced trading volumes, a resigning CEO and Cruddas’ own CMC Markets downgrading its CFD revenue forecast by 20 percent.
Last week Finance Magnates spoke to Cruddas to see where the industry is heading and how CMC Markets plans to stay ahead of the pack. From business advice and Brexit to white label agreements and a shift to professional traders, we covered the lot. So keep reading and let the wise words of one of the industry’s founding fathers seep through that skull of yours.
ANZ Migration
Our conversation started with the recent migration of 700,000 ANZ Share Investing clients to CMC Market’s Trading Platform . The largest white label partnership in CMC’s history, the agreement got off to a rocky start in late September when some clients couldn’t access their accounts.
According to Cruddas, those problems were to be expected and, to be fair to CMC Markets, the problems were more logistical than technical. The bulk of clients could access their accounts and had no problems with the broker's software.
“We’d already migrated over 100 of their institutional clients and got them up and running,” said Cruddas. “there is nothing wrong with the platform on our side. When the database was migrated, some passwords were corrupted. There weren’t enough people, at the time, then responding to customer complaints but it’s all been ironed out now.”
For CMC, the ANZ deal has come at a good time. With ESMA’s regulations coming into effect in August, the company has positioned itself well to withstand any knock-on effects that those rules may have.
From having about thirty partnerships in 2012, the company now has over 250 agreements akin to the one with ANZ. On top of that, the firm has invested - under Cruddas’ watch as CEO - more than $100 million in technology.
As a result, it’s understandable that, even with CMC Markets downgrading its revenue forecasts, the company’s CEO remains positive about ESMA’s regulation.
“I think the introduction of MT4 opened the floodgates for firms to come in, target low-value clients and b-book all the way,” said Cruddas. “Now the regulator is saying they’ve had enough and I agree with them.”
Not b-booking the Planet
Cruddas confidence seems to stem from two factors. Firstly - and to use his own words - CMC Markets is "not b-booking the planet.” The company has focused on lengthening client lifespan rather than going for the churn-and-burn model that, unfortunately, many other brokers have adopted.
“Our mantra has been for a long time, we want our clients to make money,” Cruddas told Finance Magnates. “If clients keep trading, they keep generating commissions, spreads and financing for us, so we take the view that it’s better for us if they keep making money and keep trading.”
Alongside this, CMC Markets has focused on developing a more professional client base. Since taking over as CEO of the firm in 2013, CMC Markets has attempted to grow its high-revenue client base - via an internal plan called ‘project tuna’ - instead of focusing on low-value retail clients.
“If you look across the industry, about 20 percent of clients generate 80 percent of a broker’s income, so we’ve been trying to grow that 20%,” said Cruddas. “We’ve been targeting professional clients for the past 5 years and we’re building up a good client-base there through platforms, better technology, partners and APIs.”
Raising the Bar
Peter Cruddas the businessman clearly has a solid plan to fend off any unwanted side effects of ESMA’s regulation. But, I asked, is it sad to see the man on the street - who CMC Markets spent a long time helping enter the trading industry - have their barrier of entry raised in the wake of ESMA’s regulation?
“I’m not worried about myself but I don’t think there’s enough recognition of what CMC Markets - and the industry as a whole - has done,” noted Cruddas. “We opened up the world’s financial markets to the masses.
“Thirty, forty years ago, if you wanted to buy shares, you had to write to your bank manager or call him up and get him to do it for you - if he wasn’t in a meeting. Now it’s possible for a taxi driver to pull over to the side of the road and trade 10,000 products, via CMC, on his mobile phone - with the same prices as someone at Goldman Sachs.”
But, I asked, how does pride in that work fit with support for ESMA’s regulations that may prevent that taxi driver from enjoying access to those markets?
“I don’t think it’s that extreme,” said Cruddas, adding that “there have been similar changes in Japan and Singapore but clients carry on trading. I am supportive of retail clients who don’t have a huge amount of money and I don’t want to see them over-leveraged and getting liquidated very quickly.”
From Telex to Internet
Support for the little guy may stem from Cruddas’ own background. Having grown up on a council estate and left school at the ripe old age of 15, he has been working in London’s financial center for over forty years. Back in the 70s and 80s, that wasn’t too uncommon a story for a city worker.
Since the 1990s, however, rapid technological changes have pushed aside or made redundant many people who shared Cruddas’ background. Kevin Rodgers - Deutsche Bank’s ex-Global Head of FX - captures this poignantly in his book Why Aren’t They Shouting? when he describes being driven home in a taxi by a former FX broker.
So how has Cruddas managed not only to hang on to his job but be at the forefront of technological development at one of the world’s leading FX brokers?
“I’ve always enjoyed reading and learning, I’m always challenging myself to understand new things - I joined social media early on to get an idea of what all the fuss was about,” said Cruddas. “So number one is just being open to change - that’s something I’ve always done. I saw how the internet was changing things and got on board straight away."
“On top of that, when I left school at 15, I got a job as a Telex Operator for Western Union. That taught me to type and connect with people. What I say is that a Telex machine was like going to the cinema to watch a film, the internet was like buying your own television and watching the film at home."
“The internet allowed you to connect person to person and not via a company. When it came along, I had all that experience of connecting people and sending messages, so it was almost a natural extension of what I started out doing when I was 15.”
Brexit Boom
“Open to learning”, “CEO”, and “business prowess” are not phrases the lobotomized members of the Davos crowd tend to use when describing fans of Brexit - and yet Cruddas may be the most well-known supporter of the UK’s exit from the European Union (EU) in the City of London.
Business is still business though and many brokers - wanting to passport their services into the EU - have announced plans to open offices in Europe. Does CMC plan on doing the same?
“It’s no big deal as far as we’re concerned,” said Cruddas. “We don’t have to open an EU office because we’ve already got half a dozen anyway. We’d just have to upgrade one of those offices, probably our Frankfurt office, and apply for full European status. There would be some logistical changes but they’ll be minimal - maybe an additional couple of traders on-site.”
More positive Brexit words from a company’s CEO, this author has not hard. And, as you can probably imagine, Cruddas is upbeat about the future of the UK.
“It was costing the British tax-payer a huge amount of money to be a part of a club that was beginning to take control of this country and our destiny.” He said, “Leaving that club will be good for business. I’m positive about it and I think when you see this country outside of the bureaucratic, unelected EU, you’ll be amazed at how well we do.”
A bright future for the UK and a CMC Markets that, despite recent hiccups, looks set to weather the stormy seas of Brexit and the post-ESMA world. At least for one broker, living in interesting times may not be such a curse after all.
