The e-Brokerage Arms Race and the Dash for Cash Product Connectivity

The e-Brokerage Arms Race and the Dash for Cash Product Connectivity

The opportunities and challenges online brokers now face

Blockbuster stock market events and volatility have piqued the interest of millions around the world and greatly increased the appetite for trading and investing. For online brokers, the explosion of interest is both an opportunity to capture a growing number of investors but also presents a challenge to differentiate from other brokers in a rapidly evolving market.

There is a growing contingent of investors who are now more likely to buy and hold in order to reap longer-term rewards. This growing demand from people who would previously have used traditional brokers or fund managers is forcing electronic brokerages to adapt and expand their offering by bolting on new asset classes.

The stock market boom has driven demand for cash products such as cash equities, ETFs and bonds. There is now a race among the many brokers that have traditionally offered FX and CFDs, to diversify by increasing the range of assets available to clients looking to either capitalise on the stock market or invest in bonds as interest rates look set to creep up.

Simplifying market access for cash products

Rapid market access for cash products would have been difficult for these players to capitalise on historically. Trading cash products such as equities is more complex than trading FX or CFDs, creating new administrative challenges in having to deal with issues such as client ownership of assets, rights issues and dividends – issues that many brokerages will not have had to deal with before.

Now, sophisticated infrastructure and technology have made easy market access possible – allowing brokers to quickly and seamlessly plug in new functionality and asset classes. Third party experts are at brokerages fingertips and able to deal with the intricacies of adding cash products to their offering, ensuring that they are equipped to deal with everything from corporate actions or taxation as these issues are critical. As one of the very few prime-of-prime brokers offering cash product connectivity, we have seen this trend first-hand with a significant uptick in brokers wanting the technology, liquidity and know-how to plug in new market access as a result of new client demand.

Adding new market access is not a blunt instrument – rather than having to build out an entirely new asset class themselves, connectivity can be added at speed, and focus on market events and liquidity tailored to specific client demand. This is made possible by APIs that allow for much greater flexibility and for firms to capitalise on touted market events such as hot new IPOs. Take Wise‘s recent and highly anticipated IPO, which became London’s biggest ever tech listing, as an example – ahead of the float, many broker clients wanted to access this potentially lucrative opportunity. Brokerages can now plug in tailored functionality overnight to rapidly meet client demand and give clients access to a float by requesting and plugging in very specific market access. This helps them stay ahead by quickly tapping into market events that will seize the markets imagination to plan their connectivity, stay agile and capture demand.

Building for the long term

For electronic brokerages, adding cash products is more than adding short term market access to the flavour of the month. Diversifying has longer-term benefits, such as building a brokerages assets under management, allowing them to cross-sell other services and asset classes to new investors and ultimately building longer-term client relationships.