The interdealer broker business is under pressure on two fronts, as regulators push to move to electronic trading, and a period of low volatility hits trading volumes. But BGC Partners aren't, to use the words of their Asia-Pacific head Mark Webster, "sitting with our head in our hands saying woe is me". Instead they are looking for new opportunities.
One such new venture is in Australia where BGC Partners has set up an agency broking arm, Mint, which provides fixed-income trading services to institutions outside of its traditional bank market: supers, family offices and corporates.
"We are always looking to grow the business, and specifically looking for opportunities to diversify the portfolio away from its traditional focus. There is a large customer base in Australia for fixed-income products that is outside the banking area. We can source the paper from our traditional customer base and it's just a case of distributing it to different clients. It's the same business model as before – just a different end-market."
Webster says the confluence of a favourable tax regime and large institutional investor base means Australia is particularly well suited for Mint's offering, but there are other opportunities around Asia-Pacific.
"We will wait and see how long it takes for the initiative to stick in Australia first but we are looking at new opportunities. The combination of low levels of volatility and many traditional customers managing less risk because of the new regulatory framework means trading levels are slightly less than they were a few years ago. So we are looking at different ways of engaging a new audience – and anything is on the table in that respect."
BGC has already opened an office in Brisbane and is looking to set up another in Melbourne as the firm effectively plays the role of a distribution channel for banks which are not speaking to that segment of the market any more.
"Every time we get new paper it's significantly oversubscribed – everybody wants it."
But BGC has also been making trades in its traditional role of serving the banking sector, with Webster particularly pleased with the progress of the firm's on and offshore China businesses. BGC has two offices, with over 140 staff onshore in China, and Webster says the firm is building up significant momentum in that market, particularly with respect to CNY non-deliverable forwards. This, together with strong growth in the offshore CNH deliverable business in Hong Kong, has been a strong story for the firm.
"Our onshore China businesses have continued to grow, getting stronger and stronger every month. They have exceeded the budget target we have given them every year – and this year there was a big jump."
The last 12 months have seen a return of volatility to the markets with a series of events starting with the People's Bank of China's surprise devaluation against the dollar in August last year, the Bank of Japan's move into negative rates in January and the UK electorate's recent decision to exit the European Union.
The subsequent uptick in trading was, of course, good news for an IDB, and while Brexit's impact wasn't felt that strongly in Asia-Pacific, its combination with the two central bank moves was good for business.
"Looking at the asset classes themselves, these events gave some headwinds for the fixed-income business," Webster says. "But the real year-on-year growth came on the equity derivative side. In Asia ex-Japan we did almost double the volumes of the previous year."
BGC invested heavily in its equity derivative headcount the previous year and as a result was able to expand beyond its traditional HSCEI stronghold into over-the-counter trades and other regional indexes such as Korea's Kospi, Webster says.
While Brexit's impact on Asia was limited, he adds, the IDB had positioned itself for a leave vote in any case – a change he views as less significant than some observers.
"There was a huge amount of short-term volatility around Brexit but the world didn't end overnight, just like Y2K. In fact, as with every evolution since Bretton Woods, markets have adapted."
The acquisition of GFI brought with it a host of technology capabilities and as a result BGC Partners is well placed for the next 12 months.
"We have got a very simple game plan: expand headcount and revenue growth, and be in every viable market we are not in today, and we will do that via our technology and by hiring the best people."
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