In the stockbroking industry, OpenMarkets stands out as a pure-play execution-only online broker, with a business model based on trade execution, not on advisors. It’s a business that specialises in brokerage technology for trading on the Australian stock markets and clears its own trades. It is a new way of looking at stockbroking writes Leon Gettler published in Business First Magazine September issue (pg. 78-79).
The key to OpenMarkets’ success, according to the firm’s chief executive officer and managing director Andrea Marani, lies with its application programming interfaces (APIs), software that allows different applications and computer systems to connect with each other.
“It’s a model that gives clients access to APIs, enabling them to develop their own customised trading applications on top of our technology and brand themselves around it, creating their own look
OpenMarkets generates its revenue from providing trade execution services to licensed third parties, which include fintech companies like Acorns, wealth management companies, financial advisers that manage client portfolios and internationally based brokers, as well as individual retail traders. Its trading is also linked to a number of cash and margin lending providers like Macquarie, ANZ, CBA, Bank West, NAB and Leveraged.
“As an execution-only broker, we need to be able to provide the best trading services available to our clients at the most competitive price, while utilising the best technology available,” Marani says. “Ours is a volume game. We chase execution and we want to offer as many services, tools, products and access to exchanges as we can, but we don’t want to be in the business of giving advice.”
OpenMarkets empowers their clients to innovate. It is in the business of providing APIs and best execution technology. “We would rather have our clients innovating in terms of front end applications,” he says. “Otherwise we start competing against all the fintechs out there, some of which are our clients.
“We focus instead on the core piece of broking and building our platform and network rather than focusing on developing front ends.”
Collaboration with third parties is key to OpenMarkets business model. “Our collaborative open approach and focus on integration creates a network which brings together a number of market
leading providers, which ultimately offers a wider choice and a better outcome for the end clients,” he says.
The business started in 2013 when Emlyn Scott, the then CEO of NSX, the second largest listing market in Australia, had an idea to set up an online broking platform trading into all Australian stock exchanges. This was a time when regulatory reforms were coming in requiring stockbroking firms to unbundle research from trading services and become more transparent. Scott approached Rick Klink, who was the owner of financial software provider Paritech. Rick then contacted Marani about the proposal. The two then got to work setting it up. They bought ASX and NSX market participant status and ASX clear participant status from Cameron Stockbrokers. They started hiring staff in August 2013 and applied for re-purposing of the ASX and NSX licenses. That was finalised in September 2013 and the firm started trading shortly thereafter.
As a co-founder of OpenMarkets, Klink is an executive director of the firm while retaining his role as managing director of Paritech. Marani himself started out as an accountant in South Africa
where he worked in internal audit. Fascinated by financial market, he moved to Investec Bank before moving over to London where he worked in financial control with Merrill Lynch and Bankers Trust, followed by a stint in Holland with Rabobank.
He then returned to South Africa and joined a team of entrepreneurs who set up a spread trading company. Launched under the brand of Global Trader or GT247, it grew and was eventually sold to a Johannesburg stock exchange listed venture capital company in 2007, just before the crash, for 36 million Euros. Marani then arrived in Australia with the capital behind him. He joined financial services provider Wilson HTM before crossing over to Shaw Stockbroking.
Marani is drawn to entrepreneurship. “For me personally, I prefer starting and growing businesses rather than working in large established ones,” Marani says. “You do obviously forego some benefits available to you in the large organisations but I think that in a start-up type environment, although you don’t have a lot of operational support in the early stages, there is significant upside. It’s there for the taking. It’s very rewarding to see what is being created along the way.”
“I also like to be able to make decisions, limit the red tape, and operate a pretty flat structure, so all the staff feel empowered and self-motivated. They can also all become shareholders in the business. I prefer that type of environment. That’s why I probably didn’t spend a career in accounting and auditing. I enjoy the challenges and am happy to get out there and see what changes we can make in the industry. This is the second business we started from scratch and I do prefer it.”
OpenMarkets does about 7.8 million trades a year at a value of $36 billion, so about $3 billion a month on Australian exchanges. Marani expects this to increase with the firm rolling out access to international markets later this year and looking at opportunities in managed funds.
“We are expecting it to grow to $40 to 45 billion over the next two years,” he says. OpenMarkets is in a position to pick up market share from the banks which have trading arms. “We’re growing fast and are looking to take more market share from those incumbents as we grow. The core focus for us is trading and while we are adding additional revenue streams to the business, trading will always be a key focus for us,” he says.
He says the banks are under pressure from fintech firms and firms like Apple and Google. Banks will have to start collaborating more with the fintech sector and firms like OpenMarkets.
“You would expect to see the banks focusing on their core activities and scaling back from the non-core stuff and selling off their wealth divisions,” he says. “As you are seeing the growth in the internet of things and the uptake of API services, those will pressure the banks to collaborate to a larger degree than we have seen in the past and we will see specialist firms offering specialist services alongside the banks and ultimately a better outcome for the client.
“I think that banks that don’t conform to this model will eventually become irrelevant and die.” The firm is now expanding its offering into Asian markets which he says will become important for Australia. “We have all seen the increase in the number of Chinese companies listing in Australia over the past few years, it’s been quite prolific,” he says.
“Australia has become the second biggest offshore investment destination for China, second to the US. Australia is also very highly regarded for our high standards of governance and compliance. We are seeing Chinese companies listing on the ASX and NSX but are then not being well supported because their shareholders and investors cannot place trades in the newly listed company from overseas.
“We’re stepping in to fill the gap, predominantly in relation to the post-listing services. We’re not a corporate advisor, we don’t help companies list. We offer overseas investors and shareholders in these companies the opportunity to trade in ASX and NSX listed securities.” He sees strong growth opportunities ahead.
“We have an APAC sales team that’s grown to four staff members over the last six months. They have very strong pipeline and the OpenMarkets brand is becoming very well-known and trusted by overseas investors.
Looking ahead, the focus is on two areas. One is improvement and extension of its API services to the fintech firms, which the company sees as a growth opportunity, particularly in Asia. The other area is advances and improvements to its intermediary brokerage services both locally and overseas. “Our goal is to empower these clients with the trading, tech tools and platform data feeds they need, so they can focus on their value add to their own clients.”
We will also be extending our trading capabilities and APIs into global markets and continue to build the network through the open approach that we have adopted to date.”
Wrriten by Leon Gettler published in Business First Magazine September issue (pg. 78-79).