Religare Hichens, Harrison Interview

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Interview with Chris Cheverall of Religare Hichens, Harrison & Co.

Editor: First and foremost I want to thank you for being patient with me and taking the time to do this interview for our readers. How's everything on your end?

Chris: The launch of our online cfd service and Hichens recent acquisition by Religare Capital Markets means things are very exciting for us at the moment..

Editor: Hichens Harrison is said to be the oldest stock broker in London with a history dating back to 1803. Could you give us a little background of the company and how it all started?

Chris: Robert Hichens founded the company sometime before 1803 at the age of 20 with offices originally in Lombard Street, London. The oldest document bearing the signature of Robert Hichens, which is displayed in our boardroom, is a consolidated £3 Annuity Govt. stock certificate dated July 1803. Frederic Harrison joined Hichens in 1817 and became a partner in 1829 thus creating what is now Hichens Harrison. A more comprehensive history of Hichens can be found at http://www.hichens.com/heritage.html.

Editor: Tell us about your companies - Hichens Harrison and Religare Enterprises. We have recently heard that Hichens has been acquired by Religare Enterprises for around $110 million in March this year, tell us about it.

Ramesh Sharma

Religare’s group CEO and MD, Mr Sunil Godhwani, (left) along with the CEO of Hichens Harrison and Co, Mr Adam Wilson, during a press conference, in the Capital on Tuesday. —

Chris: Hichens are a financial services group similar in nature to an old style merchant bank. We offer a wide range of investment solutions including Contracts For Difference, Execution Only Dealing, Advisory Portfolio Management, Investment Management, Institutional Sales, Research and Corporate Broking. We have offices in the UK, Dubai, Qatar, South Africa, Malaysia, Indonesia, Argentina and Brazil. We aim to add further offices overseas in India, Singapore and Tokyo.

Religare Enterprise who recently acquired Hichens is one of India's leading financial services groups backed by Rambaxy Laboratories Ltd, one of the worlds largest pharmaceutical companies. Religare offers a diverse bouquet of services ranging from equities, commodities, insurance broking to wealth management, portfolio management services, personal financial services, investment banking and institutional broking services. Religare's retail network spreads the length and breadth of the country with a presence in more than 1300 locations across more than 400 Indians cities and towns.

Editor: Where are you based? Are you regulated by the UK FSA?

Chris: Hichens head office is in Blomfield Street in the City of London and yes we are regulated by the FSA. We are members of the London Stock Exchange, the Association of Private Client Managers & Stockbrokers, PLUS Markets and the Dubai International Financial Exchange (DIFX).

Editor: Tell us why you decided to plunge into the cfd and spread betting business. When have you launched the www.hh1803.co.uk online trading platform?

Chris: Hichens have offered clients a phone CFD service for a number of years and continue to do so. We added online CFDs in March 2008 and went live initially with 2000 single stocks and 18 index products. Since then we have added CFD Commodities and CFD Fixed Income products. We aim to add CFD FX as well as Spread Betting by the end of the year.

Editor: Hichens Harrison Derivatives, which operates www.hh1803.co.uk is a subsidiary of Hichens Harrison - is this your first advent into internet trading or do you also offer online share dealing?

Chris: Online CFDs is our first advent into internet trading and we do not currently offer online share dealing services. Religare are Indias largest online player so in time I imagine that all execution services will be available online at Hichens.

Editor: I believe that you use the Arcontech's AXE trading platform to service your business. What stands out about this platform and why have you chosen it?

Chris: Yes we do use AXE which is a very good platform for our online business. Arcontech have a proven track record in this area and we have delivered a fast, robust and reliable online system for our clients.

Editor: Tell us about your biggest markets as far as trader head count goes? Or rather tell us which markets is the platform targeted to? Retail traders, professionals, UK traders, emerging markets? Given that Religare is an Indian company do you plan to target the Indian retail market?

Chris: As we are a UK based company we currently attract the majority of our clients from the UK and deal in UK CFDs. This has changed recently since we launched our online platform, the introduction of MIFID and of course by the recent Religare news. Our clients are retail, professional and institutional and have started coming from outside the UK from countries such as South Africa, Greece, Iceland and Australia.

We are obviously very keen to offer our products to clients based in India, local regulation allowing, and see the growth for our business very much in developing markets.

Editor: What markets can I trade CFDs on? You offer trading on the India's Sensex Index which is great to get exposure to the Indian market - do you plan to offer trading on individual Indian stocks at some point in the future?

Chris: You can trade with Hichens in all main European and North American markets. We will continually seek to expand this and offer products in different regions such as the Sensex which you pointed out. Offering Indian stocks on a CFD basis is something we are looking at with local market regulation taken into consideration.

Editor: You offer zero commission CFD's on main index constituents stocks? Sounds fabulous but where's the catch!? Where do you make the profits here? Is this offer going to stay or is it only valid for a promotional period? Tell us more.

Chris: There isn't a catch! We plan to continue our business model which is, making it cheaper for clients to trade. We offer market spread and zero commission on main index constituent stocks. For stocks outside the main index we are one of the cheapest providers in the industry.

We charge 2% finance over and above the relevant interbank rate which is where we make profits. This rate is again one of the cheapest in the industry.

Editor: Are the prices quoted by hh1803.co.uk real-time or do you make the market? If real-time does it mean that all cfd trades made by clients are placed directly into the market and dealt at market price?

Chris: Our prices are real-time and market quotes. Not all CFD trades made by our clients are placed directly in the market but that in no way impacts detrimentally on the clients dealing experience.

Editor: What is the minimum deposit required to open an account? What is the minimum trade size?

Chris: No minimum deposit to open and account and minimum trade sizes tend to be 100 CFDs in shares, 1 unit per point in indices, commodities and fixed income products.

Editor: Do you have clients from outside the UK? Do you cater for international clients? In which base currencies can clients trade?

Chris: Yes, we cater for clients outside the UK. Acceptable currencies that our clients can deposit are currently the majority of the world's hard currencies.

Editor: Do you offer credit facilities? Can accounts be overdrawn?

Chris: Unfortunately we do not offer credit on any of our accounts and clients must maintain margin calls in line with industry practice.

Editor: What is the minimum commission payable on a contract?

Chris: ZERO!

Editor: How much are we charged on a typical round trade? If possible, please elaborate with an example.

Chris: If you trade a FTSE 100 stock for there is no commission to pay. For UK 250 CFDs we charge 0.075% per side or 0.15% round trip and for FTSE 350 CFD we charge 0.1% per side or 0.2% round trip.

The round trip charges for a typical £10,000 CFD trade in the FTSE 100 would be 0, for a FTSE 250 CFD it would be £15 and for a FTSE 350 CFD trade it would be £30. Again, one of the cheapest available in the market.

We also offer free commission in French, German, Dutch, and US CFDs.

Editor: What are your typical margin requirements for the different markets?

Chris: Our single stock margin rates start at 10% and our index, commodity and fixed income products vary from 4-8%.

Editor: What are your financing rates?

Chris: Our finance rates to trade online are at 2% around the relevant interbank rate.

Editor: Can I trade CFDs when the markets are closed?

Chris: We operate desk hours between 8.00-9.15. Our clients can leave orders on markets when they are closed but they cannot trade them.

Editor: Can I place orders round-the-clock or do you need to place the trades when the underlying markets are open? Do I need to place a limit order or market order in the evenings to enter a CFD position the next morning?

Chris: Yes, our clients can place Orders when the underlying markets are closed although we would fill any orders unless there is an underlying price available.

If a client placed a Limit or Market Order Good Till Cancelled when a market is closed we would endeavor to execute it when the underlying market starts trading again.

Editor: Are there limits on how far the stop loss order can be placed from the entry price?

Chris: There are no limits to how close a stop has to be although a stop loss would have to be outside the current price for instance.

Editor: Do you offer guaranteed stop losses and if so do these need to be placed a certain minimum distance from the market?

Chris: We do not offer guaranteed stop losses.

Editor: Do you allow trades on smaller caps?

Chris: Yes, we offer CFDs on small cap stocks but on a phone only basis.

Editor: Do you pay dividends on a FTSE position?

Chris: Yes, Long holders of our FTSE Rolling CFD receive FTSE dividend points on Wednesday every week.

Editor: One of the main advantages of cfd trading is the ability to trade on leverage. However, recently I've been noting that some CFD providers have upped their margins requirements to 50% or more for certain more volatile shares. But, doesn't this remove one of the key advantages of cfd trading? I mean, without leverage what's the scope of trading using cfds and paying a daily interest rate to the cfd provider. Please comment.

Chris: It's true that some providers out there who initially offered very aggressive margin rates have had to increase their rates dramatically. We feel that this is not the best way to look after our clients so we chose not to go down the 5% single stock margin route so that we could maintain our margin rates when markets get more volatile.

The advantages of CFDs are not just leverage. The stamp tax saving and the ability to short are reasons alone to trade a CFD over a share. A good example recently was an Oil ETF a client wanted to short. The ETF has no stock borrow liquidity which meant it was hard for us to short on the clients behalf so we advised him to short our Nymex Crude CFD which was more liquid, had a tighter spread, no borrow requirement (since its based on a future) and a lower margin rate.

Editor: Contracts for difference are sometimes criticized because one can end up paying interest not only on the margin and the 'borrowed' amount, but also on the profits. Please comment.

Chris: We do not charge any interest on CFD profits and I would advise any client that is getting charged interest on the "profit" to move their account. We re-value the CFD at the close of business and charge interest on the notional value of the contract in line with almost every other provider.

Editor: What factors influence on whether a security is shortable or not?

Chris: If we are able to borrow the stock from our prime broker that we can satisfy our client short sales on CFD.

If stock borrow liquidity is thin or our stock borrow gets recalled this could lead to clients being made to close their short position although this happens rarely. We restrict clients CFD shorts on stocks that we cannot borrow.

Editor: Recently, especially with the crisis facing the UK financial industry and market turmoil there have been some calls from certain people for a ban/limit on the ability to short a security. Can shorting be ever contained?

Chris: For every investor or speculator that sells there is one the other side that buys so I do not think personally that banning short selling is an answer to stopping volatility. Market manipulation does need to be investigated but in the grander scheme of things I don't think we should restrict free trade and ban short selling.

Editor: A few weeks back we have even heard some German leaders proposing a worldwide ban on oil trading by speculators, blaming the latest spike in crude prices on manipulation by hedge funds. What are your thoughts on this?

Chris: Again, I think there is room in the market place for long term investors and short term speculators. Oil is on everyone's mind because so many economies depend on it but again I do not think the way to achieve price transparency is to restrict free trade. Oil is a very specific example in this case but stems mainly from the fact that the supply in largely controlled by a small group of countries.

Editor: I appreciate this question will vary according to market conditions and individual stocks, but in general I wondered if you could tell me what you consider a sensible value to invest in a CFD. I spoke to one CFD adviser who suggested that in order to achieve a good return the total contract value should be in the order of £10,000, i.e. investing around £900 but buying shares to the value of £10,000.

Chris: There is no straight answer to this and I would say a good return is based on a % profit calculated on an annualized basis and not on a fixed amount. Clients' individual financial situations taking into consideration present net worth, free cash, risk tolerance and the purpose of investment should be considered.

A £10,000 share investment is the same as a £10,000 notional CFD investment in that the maximum downside is £10,000. The difference is the outlay for a CFD in this case could be £1,000. A 5% move in the underlying still represents a £500 profit or loss but a potential 50% return on the initial CFD outlay.

Editor: Are there any platform fees which our readers need to be aware of?

Chris: No, our platform is free of charge to use. We also throw in a free graphs package which shows historic prices out to 5 years with 12 stochastic models to analyze and free Reuters news stories.

Editor: Are there any discounts on dealing charges or other perks for high-volume traders?

Chris: We can't offer more of a discount than Commission Free so I would say to prospective clients, give us a try and see if we really do live up to our promises.

Editor: Tell us about your offshore bank account offer to clients? What benefits does this give to clients?

Chris: We have teamed up with Lloyds Bank Isle Of Man to offer a Lloyds/Hichens International Account which is available in Sterling, Euros and Dollars. The main benefit is that our clients can access or switch balances into one, all or part of those three foreign currencies without incurring the normal high street foreign currency transactional costs. The other benefits include dedicated account management and 24/7 banking.

Editor: Some cfd industry participants are sometimes criticized for being known to take the other side of the clients' trade and given the leverage expect most clients to lose. Certain providers are also criticized for manipulating the market price to trigger client stops. Please comment.

Chris: I think that the practice does exist but it's not one that we would endorse. Our philosophy for creating a CFD market place online is to offer market price and extremely low rates thus creating a market place where we can match a higher number of trades that most other online providers.

Editor: Please describe one or two interesting strategies which your customers can use to trade contracts for difference.

Chris: Pairs strategies that have worked well for our clients recently were to sell index CFDs as a hedge against single stock positions when the market was falling quickly. This is because they didn't want to disrupt their core investments but wanted to take advantage of a shorter term sell off in a liquid instrument such as FTSE CFDs.

Momentum trading strategies have worked well in our Commodity CFD products particularly our precious metal and energy CFD instruments.

Editor: What are some of the biggest risks involved in cfd trading?

Chris: The main risk that clients should be aware is over leverage. In the £10,000 notional value example we used earlier I would advise clients to stick to £10,000 if their normal deal size is that rather than use £10,000 to leverage say 10 times giving an exposure of £100,000. Leverage profits can also mean leveraged losses.

Editor: Do you provide an advisory service? Any other services that you provide?

Chris: Our online CFD product is execution only but Hichens provide many other services.

Editor: Do you provide any training for new clients? Are there any virtual trading facilities?

Chris: Yes, we have a training program that potential clients can sign up for. On our website we also have video demos to teach clients how to use our software and a free demo account application process so clients can test our software.

Editor: What services are you offering that others aren't? Why should clients choose you as their CFD provider of choice?

Chris: On price alone I think we stand out by offering outstanding value.

Editor: And what's next on the cards for Hichens?

Chris: Next for Hichens is expansion to emerging market CFDs where the returns for our clients are potentially much greater. The Sensex index for instance has decimated European index returns in terms of performance over the last few years and this will continue.

Editor: Chris, to close off, is there enough education going into emerging markets, particularly, around these sorts of derivative products?

Chris: Emerging markets have now emerged and I think press coverage from the UK will increase as clients continually broaden their horizons. Indian companies such as Religare for instance are already much more well known in the UK and I think this will continue to be the case.

Editor: Have you any parting words for our readers?

Chris: Yes, my parting words would be to trust in a zero commission offer which seems too good to be true because in this case it is! .

This concludes our interview with Chris Cheverall of www.hh1803.co.uk. Please feel free to browse other articles on this site and come back next week for our next exciting interview.