Open Markets’ managing director Rick Klink: “Most of the BBY business that came to us we couldn’t accept.” Wayne Taylor
Stockbroking firm OpenMarkets, which has faced criticism for picking up market share ceded by failed rival BBY, has set ambitious growth targets while playing down concerns about the firm’s risk profile.
Managing director Rick Klink, who started the execution-only broker two years ago, said while OpenMarkets acquired several advisory groups and 13 active BBY retail clients, the firm had also turned away a lot of business.
“Most of the BBY business that came to us we couldn’t accept,” he told Fairfax Media, noting that prior to the failure of BBY in May, OpenMarkets was slowly growing its business as many of its counterparts were unable to compete with BBY on price.
Melbourne-based OpenMarkets draws on its own technology and clears its own trades, meaning it is subject to more stringent capital requirements. The firm does not rely on advisers.
Mr Klink said risk management was a priority for the firm and its systems checked bank balances on a trading-plus-zero-day, known as T+0, basis even though settlement still occurs on a T+3 cycle.
BBY collapsed in May after it was forced to wind down its exchange-traded options (ETO) business and failed to repay an intraday loan to St George Bank. In the aftermath of the firm’s demise it became clearer BBY was chasing volumes across various markets at skinny margins.
But some market players are not convinced OpenMarkets will succeed as a self-clearer on its pricing model.
“Massive swings in markets like that [this week] will catch them out,” a broker said on the basis of anonymity.
For online equities, warrants or exchange-traded-fund trading, OpenMarkets charges a fee of $13.95, or 0.07 per cent of trades above $20,000.
BBY had about 1 per cent share of trading across the Australian Securities Exchange and Chi-X prior to being placed in voluntary administration, and accounted for 7 per cent of the local ETO market, according to IRESS data.
Open markets had 0.03 per cent of the cash equities market in the first five months of the year and racheted that up to 0.9 per cent between June and August 25. The firm has jumped to a top-20 local broker over that period. In the ETO space where BBY was ranked fourth in mid-May, trading firm D2MX has picked up almost 2 percentage points of market share over the same period while Pershing added 1.5 percentage points. D2MX is the largest player in the ETO market locally.
An ASX spokesman said the exchange continued to monitor the situation, including where former BBY clients had moved to.
“The movement of clients between participants is not unusual. ASX captures the impact of client movements on each participant through its normal risk monitoring activities … Any issues related to the transfer of former BBY clients would be detected and acted upon. There have been none.”
Mr Klink noted that Open Markets was “close to profitable” and set an ambitious goal for 4 per cent market share within the next five years . The firm has almost 1700 retail clients. It employs 12 staff and six developers for its Paritech system.
Mr Klink had a long stint at IBM before starting software company Paritech, the technology behind OpenMarkets. He believes nimble low-cost trading models are the way to go to “own the cost structure”.
OpenMarkets has appointed Neil Roderick, who founded the Macquarie Wrap, as a non-executive chairman and wants to have a board in place within six months. Mr Roderick spent 14 years at Macquarie until late 2013.
OpenMarkets’ strategy draws on innovation and trading hubs and the firm wants to grow partners including banks, fund managers and developers. OpenMarkets joined Chi-X in July.
Read more: http://www.afr.com/business/banking-and-finance/financial-services/open-markets-sets-targets-argues-it-turned-away-bby-business-20150826-gj7wht?&utm_source=social&utm_medium=twitter&utm_campaign=nc&eid=socialn:twi-14omn0055-optim-nnn:nonpaid-27062014-social_traffic-all-organicpost-nnn-afr#ixzz3mLvbjjBi