South Africa, Online financial derivatives business Global Trader is planning a big move into new markets as it capitalises on its emerging market focus in its spread trading and contract for difference (CFD) business.
It says lessons learnt in the past will guide it as it opens offices in Russia, the Middle East and Australia. Global Trader launched in 2000, the first company to offer spread trading and contract for difference execution in SA.
CFDs allow investors to trade in the price movements of a stock, commodity or index without actually having to take ownership of the underlying asset. The main clients for CFDs are hedge funds, while spread trading attracts more retail investors.
The group broke even in 2001, seven months after launch, and planned a rapid expansion. “We ran before walking,” says MD Charles Savage. “We wanted to get into Europe and we were lead to believe the easiest way was through Ireland.”
The group started operating in Ireland in January 2002 and moved its trading desk function there. Shortly thereafter it also expanded to Canada as part of a joint venture.
Getting the approval of Ireland’s financial services authorities would make it easier to operate elsewhere in the European Union.
However, the Irish regulators later said they were not interested in regulating the CFD market in Ireland as it was not big enough. So in 2004, Global Trader moved its trading desk back to SA.
Savage says the group was naïve in thinking it could adopt the same strategy it had employed in SA in Ireland.
Instead it set its sights on London, applying to the UK’s Financial Services Authority (FSA) for a licence to operate in that market.
Savage says this was a key development for the business as FSA approval could be used as a “passport” into other markets.
“The regulatory hurdles in the UK are high. We completed the process in nine months and got approvals in June 2005,” he says.
This helped fulfil the company’s global aspirations.
After the FSA approval, Global Trader has been regulated to enter Thailand and reregulated to go back into Canada. Many of its competitors in Europe are focused on developed markets, leaving a gap for Global Trader.
“Our key differentiator when we sell ourselves globally is our emerging market focus,” says Savage, adding that the group’s Asian coverage includes Thailand, Singapore, Malaysia, Hong Kong, Indonesia and Korea.
Global Trader is setting up in Moscow to handle the Russian and eastern European market, while Turkey, Bulgaria and western Europe are handled from London.
It is also looking at opening a regional headquarters for southeast Asia and Australia in Sydney and using Dubai as a springboard into the rest of the Middle East, North Africa and southern Asia, including India and Pakistan. In markets where Global Trader cannot go it alone, it will go in with a partner.
In Singapore, for instance, Global Trader has linked up with one of that country’s top banks, called CIMB.
“Our focus is to build our business around emerging markets competitors have been too slow or monolithic to target,” Savage says.
Despite the expansion outside SA, growth here will be robust as hedge funds come of age.
An average 30% of volumes on the London Stock Exchange are derived from CFDs and the biggest audience for those are hedge funds.
This year could be a defining year for hedge funds in SA, particularly if the JSE bull run starts to slow, says Savage.