FP Markets Managing Director Matthew Murphie goes into great detail on leverage, trading platforms, global growth and how to navigate the challenges to ensure a sustainable future for the FX brokerage industry.
As this year draws to an end, many professionals who commit their cognitive thoughts to the continual evolution of the retail FX business can look back at a year which has presented some tremendous challenges, ranging from market presence to marketing right through to technological and infrastructure related constraints and leveraged product restrictions.
The measure of our mettle as a leading edge business sector with technological prowess and a collective understanding of the future of the financial markets structure lies in how these challenges are navigated, and in certain regions of the world, leadership is shining through.
One such region is Australia, where the quality of the retail FX brokerages is extremely high, steered by astute management and unburdened by the difficulties that have been experienced in many other parts of the world.
Australia’s proximity and longstanding relationship with the Asia Pacific region along with its perceived image as a respected and well organized business environment are attributes which have benefited the Antipodean FX brokerages to the tune of many going from strength to strength during what has been one of the most resource-hungry years since the establishment of the retail FX industry in the early 1990s.
Today, FinanceFeeds spoke in detail to Matthew Murphie, Managing Director at FP Markets in Sydney, Australia, in order to gain his perspective on how the evolution and structure of an FX brokerage
How did you arrive at your current senior position, and what initially important matters were first addressed when you made the transition from working in an Investment Bank to lead FP Markets, which today is one of Australia’s largest brokerages?
I co-founded FP Markets which became regulated by the Australian Securities and Investment Commission (ASIC) in May 2005. Prior to setting up FP Markets, I worked at Merrill Lynch and briefly at CMC Markets and saw that there was a great opportunity to provide CFDs and Forex products using a transparent pricing model, being a DMA or ECN model.
FP Markets was one of the first companies in the world to offer pricing in such a fair and transparent way and it remains an important part of the company’s heritage today. I believe that being a pioneer in this area is what has led FP Markets to become one of Australia’s largest brokers, and in turn, has provided me the opportunity to lead such a great company and attract the elite team of industry professionals that we have.
When establishing the company, what did you initially seek to achieve and how did you plan to differentiate FP Markets ahead of other electronic brokerages at a time of large influx of companies onto the retail market?
Initially we were seeking to be well known for our tight pricing and DMA/ECN pricing model. We also had ambitions to become the largest CFD brokerage firm in Australia. Independent research from Investment Trends shows 1 in 2 Australian clients looking for price transparency (under a DMA/ECN model) have an account with FP Markets so are pleased that we succeeded with this initial goal.
Notwithstanding our success in Australia, we have always planned on being one of the largest brokers globally, via combining our DMA/ECN pricing model and the industries tightest spreads with our heavy investment in technology to provide clients with bespoke features not available elsewhere.
Our experience in Australia has taught us that our strong product alone is a driver of growth rather than relying on excessive marketing. We have the largest rate of referrals in the industry, which we see as the ultimate endorsement of our offering and indicates that we are achieving our goal of being the default choice for serious traders.
We see the large influx of companies as having a positive effect on our growth, for the reason that they rely heavily on spending money on marketing which grows the market, and this has proven to provide us with a larger pool of clients and potential clients. Research shows that once clients become more educated, many of them move their accounts to us as we have successfully gained a reputation of being a serious company for real traders, rather than simply a marketing company.
Although creating brand awareness is important, being able to back up these claims with substance to give real traders what they need is what really counts. This means the tightest pricing, bespoke systems, platforms and the best customer support. Add this to the fact that FP Markets operates under the supervision of a strong regulatory framework, as we do under ASIC regulation in Australia, and it is a formidable combination.
Being an Australian company with a global footprint serving the local domestic market as well as Asia Pacific and Europe, what are the major challenges and advantages which face spread betting and CFD providers, compared to that of overseas firms which offer spot FX?
The challenges in operating any global broker are rapidity increasing due to regulatory tightening, increases in capital requirements and fierce competition. However, these challenges provide opportunity for well-established and well-capitalised brokers as the costs and complexity of managing firms in the sector increases.
Additional challenges revolve around quasi-regulation, whereby third parties such as Google and Paysafe actively involve themselves in the regulatory process, although they lack industry understanding or insight when imposing certain measures.
A major advantage for FP Markets is being an experienced high-volume broker that has operated in a highly-regulated environment for many years. This provides us with the best of all worlds. Firstly, since we execute billions daily, we receive extraordinarily tight pricing which we pass only to our clients. Secondly, our experience provides us with well-developed systems and processes to support serious traders. Finally, we offer attractive leverage as well as providing our clients with comfort knowing that we operate in a highly regulated environment.
Australia has become a highly respected nation on the global arena for retail FX and CFD companies, and our experience in Australia is that the quality of the leadership and business methodology within retail brokerages is world-leading. ASIC, the national regulator, is aware of the talent base that exists and is one of the most well organized and technologically advanced regulators in the world. How does its constant surveillance, increasing level of restrictions, its harsh stance on CFD trading and reluctance to issue new margin FX trading licenses stand in the eyes of a retail broker? Is it a good thing that keeps the quality high, or is it an obstacle that may lead firms to other regions in Asia?
I believe that ASIC’s stringent approach has kept standards high in Australia – which is undoubtedly a good thing. ASIC enforces some of the highest industry standards in the world and has a reputation for providing robust levels of client protection. One example being that they require companies to be adequately capitalized and ensure that clients funds are held in line with Australian Client Money Laws.
This means that client funds are not only held separate from the company’s funds, ASIC also requires that all funds are reconciled each day, and reconciliations must be submitted to the regulator monthly. These high standards make ASIC one of the worlds most respected regulators. In theory, ASIC are still issuing new licenses, although they are incredibly strict in their criteria which has resulted in very few ASIC licenses being issued in recent years.
The global trend in the industry is a move towards tighter regulation, which undoubtedly is making it difficult for unregulated, or rogue aspects of the industry to operate, which we see as an industry positive.
Some high-level extra-industry senior recruitment has taken place at FP Markets, including former Clifford Chance legal counsel Craig Allison who joined the company as Head of Global Development. Was this appointment made in order to bring in the expertise at senior level gained at a vast corporate law firm to take FP Markets into a larger expansion, or does FP Markets have M&A aspirations to capitalize on inevitable consolidation opportunities?
In order to achieve our ambitions in the global market place it was clear that we needed high-calibre staff situated globally.
Craig has a strong back ground of delivering success and brings a wealth of international experience which combines a prestigious global law firm, Clifford Chase and a number of board level roles in renowned global companies.
Hiring a staff member, such as Craig with his strong background of success, is indicative of our company culture. We strive to employ staff of a high standard given our people are one of the main keys to our success. Such high standards are set throughout all aspects of the business, starting with staff, with the ultimate purpose of ensuring that we consistently deliver high standards and quality of service to our clients.
In relation to any M&A aspirations or consolidation opportunities, we are currently experiencing record growth and this is more than enough to keep us occupied at this stage.
Do you agree with the recent impositions on leverage and advertising that have taken place across many regulated jurisdictions, and how do you think they will affect retail firms? Will companies simply ask clients for larger margin and then maintain stable client bases in established regions, or will they go offshore and look toward young and aggressive new markets in South East Asia, eschewing regulation?
As an Australian broker regulated by ASIC, we are not subject to current European leverage restrictions and are able to offer 500:1 leverage.
In relation to recent changes in EU regulation, I agree with any tightening of regulations that genuinely provides better protection for clients. However, it is clear that many people ultimately just want to trade. I think it is important that clients understand the risks of trading, and in particular the risks of using leverage, however provided clients are in a position to make an informed decision, I believe in freedom of individuals and therefore I don’t see that forcing clients to use lower leverage if it is against a client’s will as a reasonable approach.
This approach is forcing clients to go offshore to seek higher leverage and trade with unregulated brokers in many cases, which arguably poses greater risks to clients. In my opinion, clients should be able to be protected by their local regulators while maintaining their desired trading conditions. Furthermore, it has been shown that in some situations, lower leverage together with regulations forcing firms to liquidate their clients under EU regulations is resulting in further client losses.
In relation to simply asking for more money in reaction to the leverage restriction, this is not viable in all situations as many clients would prefer to trade off-shore, or with an ASIC regulated broker than to provide additional margin.
In summary, I am in favor of any regulation that better protects clients however I remain skeptical that measures, such as leverage restrictions, are resulting in the intended outcomes.
How valuable is in-house platform development? As spread betting and CFDs often require specialist platforms, can the cost of this technology be offset by the volume produced by a domestic client base, and can the technological development be licensed to other firms?
FP Markets has invested millions of dollars in infrastructure, platforms, and other bespoke forms of technology to make sure that our client-offering is the best in the industry. We have done this as we believe that combining in-house technology with the industry leading platforms and tools provides the best outcome for clients.
Our experience has been that the cost of investing in technology has been more than off-set by the increases in trading volume and has enabled us to differentiate ourselves from competitors.
We do make our technology available to other firms via White Label and IB offerings – an area of our business that is growing rapidly.
What does FP Markets look forward to in the coming year?
We are looking forward to continued growth globally as we have experienced in 2018. By the end of next year, we plan to be a globally-renowned broker to serious clients all over the world.