Market data has long been a bugbear for CFD providers and other retail trading firms. With expensive compliance costs, complex contracts, and an annoying set of bureaucracy, it's not hard to see why.
Seeing these frustrations, one company has been attempting to handle all of the boring stuff and let brokers get back to providing better services to their clients.
TradeTech, a London-based subsidiary of PlayTech, has been providing a set of market data solutions for some time. But last month, the company announced that it had forged a new set of partnerships with some major financial institutions.
To find out more about the company's new offering, we spoke to TradeTech Group director Muhammad Rasoul.
Going beyond his firm's new set of partners, we discussed developments in the CFD market and where Rasoul thinks the retail trading industry is heading.
Why did you make the decision to expand your set of market data partners?
Our offering is not a new service. But what is new are the strategic alliances we have formed with exchanges in the UK, Europe, and Asia. These allow us to offer a significant price advantage to our clients.
We have been providing market data for a long time, and our aim has always been to make life easier for our customers, as we know that obtaining this data themselves can be a complicated and expensive business. Now we can offer this service at a lower cost; it will be a major boon for smaller and start-up brokers.
Why is it better for a CFD provider to use TradeTech's market data offering, as opposed to just making deals with exchanges directly?
If you want to trade derivatives with stocks traded on an underlying exchange, you have to negotiate separately with that exchange. For example, if you want to trade DAX, you must have a deal with Deutsche Boerse, and if you want to trade DOW, you must have a deal with the CME.
It’s a hassle, and that’s what we are trying to simplify. It can be a time-consuming and costly process. For smaller brokers setting up this infrastructure can be prohibitively expensive. We can provide this infrastructure. We have the partnerships in place and scale to absorb these costs, allowing us to form strategic alliances with our clients with considerable cost benefit to them.
Are there any market data pressure points that are unique to CFD brokers? Why is TradeTech in a good position to alleviate those problems?
Absolutely. If you want to offer ten thousand CFDs, you need agreements with myriad exchanges, and people to be responsible for that, and separate connections within each exchange. It’s very complex. We are in a great position to put an end to that.
We can make these agreements on our customers’ behalf, and they will have a single connection through us via which they will be able to consume all market data.
Our platform is also positioned to provide access to multiple data sources, brokers simply tell us what they want to consume, and we will do all the legwork. A robust CFD offering can get complicated due to market data; we provide the security that data use is in line with legislation.
TradeTech is going to be providing Liquidity for the 4,000 instruments that you are providing data on. Are there any that you think are especially likely to garner interest?
Interest is driven by demographics and varies over time. All our brokers have different targets and consumers they want to reach. Crypto has been popular over the last two years, but will likely be less so over the next two.
Now it seems single stocks for companies IPO’ing are in vogue. But the main point is that normally, when you contract to consume market data for your CFD, you also need to find someone who will provide liquidity. It’s normally a different company.
When you contract with our group, we do the market data and legal reporting, so you are contracting with the group that provides the underlying liquidity so you can actually trade those things. This is quite uncommon. We can facilitate the trading based on the price we provide.
Your liquidity is provided by CFH Clearing. If I’m a broker and I use CFH as my liquidity provider, how much of that liquidity is from CFH’s own market-making vs. other companies?
Liquidity is provided by a combination of CFH Clearing and TradeTech Alpha. If you’re looking for a market-made price from a market maker who creates a price based on broker needs, you’ll use TradeTech Alpha. If you want a clearer who has a relationship with tier 1 banks and can give you access to them, you can trade with CFH. That’s why we offer all these things together as one.
TradeTech offers a broad set of solutions and products. Are there any at the moment that you see particular demand for? Why do you think they are more in demand?
The industry is at an inflection point right now. There is a lot of competition, and rules and regulations are changing for a variety of markets around the world. Brokers who are worried about their bottom lines are looking to be as efficient as possible.
Meanwhile, people are coming under pressure in terms of market data and technology, like CRM, marketing tools, client acquisition analysis, and required regulatory reporting. People ask about our tech solutions as we provide support for all of this.
We regularly hear that ESMA is making life very hard for brokers. As an LP and tech provider, you are upstream from them. Are you feeling the pinch?
I don’t think we’re feeling the pinch, but we are seeing the pinch. We’re seeing how that is affecting brokers, and so we’re trying to help existing and new partners to spend less to accomplish their goals. We offer solutions by listening to our clients rather than giving a hard-sell. We are trying to help brokers succeed in these challenging markets.
Many retail trading executives are very pessimistic about the future of CFD trading. In the market itself, we see more and more people going to far-flung corners of the earth to run high Leverage brokerage outfits, which doesn’t seem like a viable, long-term business model. How does TradeTech see things panning out?
As I have been in the industry since the mid-90s, my opinion is different from a lot of executives and brokers. There has always been something in flux in the last 25 years, and I imagine it will continue this way. What I don’t think will ever change is peoples’ desire to speculate on the financial markets. Markets are exciting and fast-paced, and it’s something that people want to do.
I think what has happened is brokers have adapted to the current paradigm they are in. Some may get shaken out of the industry, some may change their commercial models, but if you are running a business, know your identity, know your targets, and you’re good at it, you’ll be fine. The business is certainly not as forgiving as it used to be – that happens as markets mature. But if you bear this in mind and be prudent in what you’re doing, it will not be a problem.
