The ‘addictive’ way of working behind Marex’s rapid growth

Staff are encouraged to run lots of little experiments to figure out what works – and what doesn’t

Marex – the non-bank clearer and broker that has ambitions to do much of what banks do – celebrated eleven straight years of record profits when it released earnings last week. 

The firm’s story of rapid expansion – told here – reflects secular forces in markets, which is to say, a steady pull back by banks from businesses such as clearing that consume too much regulatory capital. It also reflects Marex’s approach: an entrepreneurial, opportunistic culture that puts an emphasis on testing ideas and seeing what happens above the charting of a narrow roadmap ahead.

For financial services companies that want to grow fast and innovate, Marex offers an interesting model. Every firm would like its people to come up with fresh ideas. So, when I interviewed Marex’s leadership team in February, I asked them what they do – concretely – to keep the entrepreneurial spirit animated.

Everything we do, we start small. We test it in reality, not in theory

Nilesh Jethwa, Marex Solutions

The Marex way, it seems, hinges on experimentation. Rather than wait until more information has been gathered before making a business development decision, the firm’s bosses are inclined to proceed but to limit the risk.  

“Everything we do, we start small,” says Nilesh Jethwa, who heads Marex Solutions, the part of the firm that structures over-the-counter hedges for clients and runs its structured products programme. “We test it in reality, not in theory.”

“If you do little experiments in a closed area and you limit the exposure, you can do lots of experiments quickly and find the one that really works,” he says. Jethwa’s own team started out with a “wallet” of $30 million. Today it generates one-and-a-half times that in profits every year.

Jethwa describes the approach as “addictive”, particularly for more junior employees.

Because experiments are low risk, the firm can accommodate the unavoidable failures that come with innovating. It’s clearly different from the culture you might find in a bigger organisation – a bank, say.

“If every little thing takes six months to agree, through five committees, where only the managers are present, and then it turns out it was a bad idea – if everyone shouts at the person who had the idea because it’s wasted six months of resource – that tells you not to have the idea and to sit in your box and hope the machine does its job,” Jethwa says.

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When Paolo Tonucci, who heads Marex’s capital markets business, describes how the firm reached conclusions about its strategic direction, it sounds like an exposition of the scientific method. 

“We spent a lot of time testing things, talking about how we might win more clearing business and what we needed to do – what we were missing,” he says. 

An example? Conventional wisdom says that clients do business with a firm primarily because of relationships. Tonucci tested the notion, selectively offering certain clients more credit or different interest arrangements on collateral, and found that doing so made a “surprising” difference to how much business Marex won.

Marex’s string of firsts suggests the approach is working. The firm is alone among its peers in creating a structured products business and one of only two non-banks in the space. 

In September last year, Marex acted as clearer for the first client to use cross-margining of futures traded at the FMX Futures Exchange and interest rate swap portfolios cleared at LCH. Marex has said it will be ready to offer FICC-CME cross-margining for cash Treasuries, repo and futures on day one when implemented this year.

In crypto,  the firm joined as a day-one clearer for SGX Crypto Perpetual Futures on SGX Derivatives last November.  Marex was among the first clearers to take part in the CFTC’s pilot programme to accept bitcoin, ether and USDC as collateral.  

No firm can claim all the answers when it comes to encouraging entrepreneurialism. For those who wish to improve their ability to innovate, though, Marex’s approach – test-it-and-see but keep your experiments small – offers an idea that’s arguably worth a try.