CMC Markets (CMC), one of the big players in the retail trading space, released a mammoth-sized financial report for the 2018 fiscal year this Monday. Running to almost 150 pages, the report provides details of the firm’s accounts up until the end of March of this year.
Being the kind, warm-hearted people that we are here at Finance Magnates, we have taken the time to go through the report, which also outlines CMC’s business plans and strategy for the near future, and have identified some key points that everyone in the industry should be aware of.
So without further ado, here are five must-know takeaways from CMC’s annual report.
CMC has strengthened its institutional efforts - and its paid off
Though the bulk of its revenue still comes through retail clients, in recent years CMC has focused more and more of its efforts on attracting institutional clients. Monday’s report suggests that this change in strategy has paid off, with a significant portion of the growth in the company’s overall revenue attributable to institutional clients.
Last year, the firm reported that £22.7 million ($30.11 million) of the firm’s revenues were generated through institutional clients. This year that figure grew to £31.4 million ($41.65 million) - a 38 percent year-on-year increase.
When we take these numbers and compare them to the performance of CMC’s retail clients, we can see that growth was exponentially greater, in percentage terms, in the institutional space. Discounting institutional clients’ input into the company’s coffers, CMC’s revenue grew from £139.1 million ($184.51 million) in 2017 to £155.4 million ($206.13 million) this year.
Yes, this means that in purely monetary terms, growth in revenue was greater in the retail space - but not by much. Moreover, in percentage terms, growth in the retail space, though still an impressive 11.7 percent, was dwarfed by the 38 percent increase in institutional revenue.
CMC has high hopes for its white label partnership with ANZ Bank
Growth in the institutional space doesn’t mean that the firm has forgotten its retail roots. One point that CMC emphasized throughout its report was its white label agreement with ANZ Bank.
Announced in March of 2017, the firm is providing a white label stockbroking service to the Australian bank. The service will be launched in September of this year and, if the firm’s claims are accurate, it will see CMC becoming the second largest retail stockbroker in Australia.
CMC will be providing execution, customer service, and technology services to the ANZ Share Investing solution (ANZSI). The service has approximately 500,000 users in Australia and, although CMC will be providing much of the infrastructure that will facilitate trading, it will be marketed as an ANZSI service.
Interestingly, CMC’s report depicts the partnership as an example of its expanding institutional business, even though the bulk of ANZSI’s clients fall into the retail investor category. This is likely a result of a growing grey area that exists at the faultline between retail and institutional services, with the divide between the two less pronounced than it once was.
The firm is growing its current businesses and expanding into new jurisdictions
Outside of its Australasian efforts, CMC’s report reveals the firm also has plans to expand into new jurisdictions and drive growth in existing ones. The company reported that revenues from its largest markets, Germany, Australia and the UK, grew when compared to 2017.
It also noted that its efforts in Poland had paid off. The number of active clients in the Eastern European country grew by 52 percent in the last fiscal year, although the firm didn’t reveal whether there was a corresponding increase in revenues.
Despite regulatory pressures in France, including the banning of advertising related to retail FX trading, the firm was able to strengthen its business there. The firm reported that it had seen growth in its French business that surpassed revenues from the 2017 fiscal year.
Beyond Europe, CMC also revealed that it plans to open offices in the Middle East. Unfortunately for us, the firm did not go into a great deal of detail regarding these plans, only noting that it is likely to open an office in the region in the year ahead.
China also looks set be an area of growth for the firm. CMC’s report states that, though the Chinese market is “underdeveloped,” it sees China as “a great future opportunity.”
Uncertainty, a result of government policy, may have prevented CMC from expanding in China to the degree that it would have liked but it has still made some moves in the country. In October of last year, for example, the firm opened an “education office” in Shanghai.
The firm is adopting MetaTrader to take advantage of ESMA's new Regulation
CMC has been renowned in the industry for its refusal to adopt the MetaTrader 4 or 5 (MT4, MT5) trading platforms. Historically, the firm has used its own Trading Platform and, given the company’s ongoing success, this doesn’t seem to have been too problematic.
Indeed, the company issued an update to its technology just three months ago. Aimed at its more high-end clients, the firm released a professional trading platform called CMC Pro in April of this year.
This doesn’t seem to have been enough to placate the demands of the firms’ clientele. In its report, CMC noted that it would be launching MT4 and MT5 trading solutions in the coming year to meet the demands of new and current clients.
This may be true, but it hides an underlying truth. CMC’s report also noted that its decision to add MT4 and MT5 to its service offering was driven, aside from client demands, by “opportunities arising from regulatory change.”
This seems to suggest that the firm is taking advantage of what is likely an impending collapse of many small brokers in Europe. New regulation from the European Securities and Markets Authority (ESMA) will see a massive clampdown on, amongst other things, leveraged trading.
In response to this, many brokers, unable to survive under the regulatory requirements, are moving offshore or shutting shop. CMC appears to be making a move to mop up the clients of these brokers, who either need to find a new broker or want to trade with one that still has regulatory approval and the accompanying customer protection.
The firm is not concerned about ESMA's regulation
As is implicit from this behavior, CMC is, at least according to its report, happy with ESMA’s regulation. Nonetheless, the firm did note that the regulation, which is set to go live in August, will likely have adverse effects on its revenues in the short-term.
As with other retail trading companies, CMC looks set to try and offset the risk imposed by the new regulation by aiming at attracting a different set of clients. The firm’s attempt to expand into the institutional space is one example of this.
Another is the reclassification of investors. CMC noted in its report that it is reviewing client requests to reclassify as professional investors, a change that would mean they are not susceptible to ESMA’s regulatory restrictions.
The firm added that it’s client onboarding efforts will focus on bringing in experienced, professional clients who, though the firm did not state this, will not be subject to the ESMA regulation. Significantly, the firm implied that the launch of CMC Pro was intended to attract clients who would not be subject to ESMA’s regulation.
Bright future
CMC’s report should be viewed as a big positive for shareholders. The firm looks set not just to survive the impact of ESMA’s regulations but actually make some cash out of them.
Its efforts at expanding into the institutional space have also been successful, and the new business lines created by those efforts look set to continue to provide growth for the firm.
Despite a saturated retail market in Europe, CMC has performed well in the region and set itself up well outside of the continent. Its Australian business is performing well, and if the firm can succeed, as it intends to, in the Chinese and Middle Eastern markets, it will have a new source of clients and revenue to build on.
