Andrew Wood Interview: CMC Markets 2021 Technology Drive

The 32-year-old brokerage has long been recognised as a technical innovator, but developments over the last twelve months have seen the company undertaking a wholesale infrastructure upgrade, enabling CMC Markets​ 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 draw not only 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. 

Andrew Wood, head of CMC Markets Connect Institutional Sales for APAC, takes us through the highlights of the technical developments to illustrate what that means for both the company and its growing institutional client base.

Fazzaco: Just over a year ago, you launched a new institutional brand – what was the motivation in doing this?

Andrew: CMC Markets has spent the last thirty years striving to build a world leading proposition that delivers what customers want whilst taking advantage of the latest innovations both in terms of the underlying market and the technology that's available. What that evolution has meant however is that we were in some instances developing and then offering increasingly sophisticated products for an institutional-only audience, so we needed to find a way to make this distinction clear, making it easier to project the right messages at every step of the journey.   

So to address that, we launched CMC Markets Connect, offering a clear and separate identity for our institutional operation. And this was about far more than just avoiding brand confusion, as internal developments in terms of price construction mean that under the Connect brand we're also now acting as a genuine provider of liquidity to other banks and brokers. Whilst 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.  

Fazzaco: Is there any one point that sits at the core of this new proposition?

Andrew: We have migrated the entire primary trading and risk infrastructures into the LD4 datacentre, and that's arguably the single most compelling point here. Historically we had some operations located within the datacentre whilst others ran at our own sites, but in becoming a genuine liquidity provider in our own right, we had to ensure all our processes were accelerated, which in turn enabled us to further reduce latency. That also meant even our back office booking system has been transferred into the shared datacentre, whilst we also upgraded our 'transport layer' to again ensure performance was optimised between the various components. Our mantra was simply that if we weren't removing every potential lag from the system then counterparties are being offered an advantage.

Fazzaco: CMC is well known for undertaking much of its development work in house – was this any different?

Andrew: Our internal development teams took the lead here, but we also called in the support of third parties where it was obvious they could deliver real value-add. As an example of this we undertook a "technology partnership" with Quod Financial to help provide enhanced price discovery and price ladder construction outcomes. The upshot here was improvements in our own FX hedging abilities, but it's also important to note that a series of in-house developments improved our index and commodity CFD pricing, too.

Fazzaco: How has this major infrastructure shake up impacted the overall product offering?

Andrew: The product offering has seen a series of significant improvements over the last 12 months, largely as a result of the sheer scale of the underlying overhaul. What's more, further developments are on the cards for the months that lie ahead, but just to run through some of the highlights so far.

• A dedicated onboarding channel for CMC Markets Connect clients, something which served to streamline processes and consequently accelerate the time taken to get new institutional counterparties live and onto our system. This was about taking an institutional-first approach, as opposed to simply trying to repurpose tools used elsewhere in the business.

• A relaunch of Spot FX. Historically this was part of the broader CMC Markets product suite, but wasn't necessary for the retail side of the business. However, given it is the industry standard in terms of wholesale liquidity provision, we are once again offering the asset class, whilst still providing access to a wide range of instruments using CFDs, too.

• A new platform has been developed exclusively for CMC Markets Connect clients, giving them access to that range of more than 12,000 instruments – and that number continues to grow. Because of the architecture we use, we can easily remove those components we developed for retail traders which institutional clients simply see as being superfluous. Instead, we now offer this cohort direct access to the functionality they need, acknowledging that they will be using multiple sources of information to allow them to develop trading strategies.

• A new optimised API, connecting institutional clients to LD4 servers, including a number of new order types which historically haven't been supported. Whilst there's a chance that some may be surprised to learn just how unsophisticated many platforms in the market are, these latest innovations allow us to support 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. That's something that is rarely found outside the Prime Broker community.

Fazzaco: This top end of the institutional market presumably expects more flexibility from their liquidity providers?

Andrew: That has certainly been a key motivator as we went through the overhaul process, but in addition to flexibility of the underlying product we also have the new platform and API connection, which again have been built to meet the demands of serious institutional customers. As has already been said, we included the ability to conduct manual rollovers, as well as adding in both multi-currency accounts and multi-currency ledgers. Attributes like this all combine to allow select clients to manage their own exposure, rather than purely being constrained by the rules we set. What's more, this will shortly be bolstered by a state-of-the-art, fully automated give-up process and will be integrated across all our systems.

Fazzaco: Is there anything else institutional clients want to see?

Andrew: It comes down to their quest for a seamless service that works on their terms. To address that, we have been integrating with a number of the major bridges, ECNs and other FinTech providers, meaning that we are able to work in tandem with the client. Whilst the number of potential connection partners is quite large, we see this as being an iterative process, so it's one that our internal development teams are working on to steadily increase this number. Right now we have connections established with a total of five ECNs and bridge providers, and this is a number we expect to double over the next six to twelve months. Ultimately this helps us meet that goal of being considered as genuine players when it comes to the global FX market ecosystem.

Fazzaco: And where does the product go next?

Andrew: 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 that 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. For a number of years, we have been offering underlying equities and ETFs from across the region as a consequence of our role as an ASX market participant. We continue to grow the list of instruments on offer here, but specifically continue to expand the number of single stock CFDs offered on markets across the globe and also endeavour to add innovative products such as the OTC carbon credit derivatives we started quoting at the end of 2021. The market continues its evolution, but as we have seen repeatedly over the last 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 which are needed.