CMC Markets’ 2021 technology drive

Richard Elston, group head of institutional sales at CMC Markets, discusses the highlights of recent technical developments, illustrating what that means for the company and its growing institutional client base

The 32-year-old brokerage has long been recognised as a technical innovator, but developments over the past 12 months have seen CMC Markets undertaking a wholesale infrastructure upgrade, enabling it to become a true contender for institutional price and liquidity construction. Under the CMC Markets Connect brand, the broker has been expanding its role as a non-bank liquidity provider, allowing it to not only draw on established prime broker relationships, but also leverage a comprehensive array of price feeds along with its internal flow, creating a genuine new pool of consistently priced liquidity with the ability to quote at or above market depth.
 

Looking back to the start of 2021, you launched a new institutional brand – what was the motivation behind that?

Richard Elston: Despite the success of the company over the past three decades, we found ourselves needing to better delineate between the institutional and retail product offerings. To address that, we launched CMC Markets Connect, which allowed us to create a clear, separate identity for our institutional operation, and provide a better reference point for what we wanted to deliver in terms of price construction and as a genuine provider of liquidity to other banks and brokers. While many claim to offer this service, all too often it’s simply a case of recycling the liquidity of others, and we needed to make it abundantly clear that this wasn’t the approach we would be taking.
 

What sits at the core of the new proposition?

Richard Elston: Our migration of the entire primary trading and risk infrastructure into the LD4 data centre is probably the most compelling point here. Historically, we had some operations housed within LD4, while others ran at CMC sites. The move to becoming a liquidity provider meant accelerating processes and removing latency was absolutely critical. To that extent, even the back-office booking system has been moved into the shared data centre, while we also upgraded our ‘transport layer’ to ensure performance was optimised between the various components. Ultimately, if you’re not removing every potential lag from the system, then counterparties are being offered an advantage.
 

As a company, CMC is well known for its in-house development work. Was this process any different?

Richard Elston: Although internal development teams took the lead here, we certainly did draw on third-party support where it could deliver real value. To that extent, we established a technology partnership with Quod Financial that provided us with enhanced price discovery and price ladder construction outcomes. While this improved our own hedging abilities in FX, a series of in-house developments have also improved our index and commodity contracts for difference (CFD) pricing.
 

With the infrastructure overhauled, how has that impacted the product offering?

Richard Elston: The sheer extent of the change process means we have been able to significantly improve our institutional product offering throughout 2021 – and there is more to come this year.

First, we were able to launch a dedicated onboarding channel for CMC Markets Connect clients, something that served to streamline processes and consequently accelerate the time taken to get new institutional counterparties live and onto our system. Again, this was about taking an institutional-first approach, as opposed to simply trying to repurpose tools used elsewhere in the business.

With that part of the process sorted, it paved the way for us to relaunch Spot FX. This had been part of the broader CMC Markets product suite historically, but wasn’t necessary for the retail side of the business. We have, however, resumed offering this asset class, which is very much the industry standard for wholesale liquidity provision, although we obviously continue to provide access to a wide range of instruments using CFDs too.

We have also overhauled this offering for our institutional audience, with a new platform developed solely for CMC Markets Connect clients, giving them access to that range of more than 12,000 instruments – and that number continues to grow.

Critically, our architecture allowed for the removal of those modules available for retail traders that were deemed redundant for institutions. We now offer this cohort direct access to the functionality they need, acknowledging they will be using multiple sources of information to allow them to develop trading strategies. We have also been able to release a new optimised application programming interface (API) connecting institutional clients to our LD4 servers, including a number of new order types that historically haven’t been supported. Again, there may be a degree of surprise at how unsophisticated many platforms are here, but we’re now supporting resting orders as well as offering more complicated functionality, such as the ability to conduct rollovers not only on an automatic basis, but also manually if required – something rarely found outside the prime broker community.
 

Does this top end of the institutional market expect more flexibility from its liquidity providers?

Richard Elston: That is indeed very much the case, and something we have accounted for in the infrastructure overhaul, plus the new platform and API connection. As previously noted, we included the ability to conduct manual rollovers, and we have added in both multicurrency accounts and multicurrency ledgers. These attributes combine to allow clients to manage their own exposures, rather than purely being constrained by the rules we set, and is soon to be augmented by a state-of-the-art, give-up process that is fully automated and will be integrated into all of our systems.
 

What else are your institutional clients looking for?

Richard Elston: They want a seamless service that works on their terms. To that extent, we have been integrating with a number of the major bridges, electronic communication networks (ECNs) and other fintech providers to ensure we’re able to work in tandem with the client.

While the number of potential connection partners is significant, this is an iterative process and our internal development teams are working to steadily increase this number. At the time of writing, we have connections established with a total of five bridge providers and ECNs, and we expect this number to double over the next six to 12 months, ensuring we are considered genuine players when it comes to the global FX market ecosystem.
 

And where does the product go next?

Richard Elston: With the upgrade of the institutional back end now complete, our primary focus is on continuing to expand the range of instruments we have on offer to counterparties. Ultimately, we want to be the one-stop shop that can meet all liquidity needs, and we understand this approach brings great value to clients. We have addressed this with a series of initiatives, ranging from streamlining reporting and managing margin requirements, to growing the tradable universe. That includes increasing the range of investment-grade assets offered, such as exchange-traded instruments and cash equities, along with the addition of more innovative products like the over-the-counter carbon credit derivatives we added at the end of 2021.

The market continues its evolution but, as we have seen repeatedly over the past decade, as legacy participants shift their strategies and product offerings, this presents the ideal opportunity for fintech innovators such as ourselves to step in and deliver the solutions that are needed.

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