Shai Heffetz On Intertrader’s Pivot into Prime of Prime

Unless you were looking carefully, you wouldn’t have spotted some of the shifts that have been taking place at Intertrader over the past twelve months. But, from within its London-based offices, the firm has been quietly making some big changes to its operations.

In its most recent annual report, gaming giant GVC Holdings, Intertrader’s parent company, said that it had “acquired two small financial trading businesses during the year, helping deliver greater scale to the existing Intertrader business and broaden [GVC’s] financial trading product range.”

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One of those companies was Sigma Trading. Formerly a part of execution services provider Sigma Broking, the company, now owned by Intertrader, acts as a derivatives broker for experienced traders.

The other company that GVC alluded to in their report was Argon Financial. Acquired by the group last November, Argon will be providing a mix of prime brokerage solutions for Intertrader’s institutional and professional clients.

Long-term planning

With those two acquisitions in mind, as well as a large-scale rebranding effort on the part of Intertrader, we headed over to the broker’s London office last week to speak with CEO Shai Heffetz and find out what the firm’s plans are for the future.

“We’ve been preparing to make changes since mid-2015,” said Heffetz as we started our interview. “I could see then where the wind was blowing and started to put the wheels in motion. Then when the Financial Conduct Authority proposed changes in late 2016, we realised we probably had less time than we thought we had and redoubled our efforts.”

Those “efforts” have led to more than just cosmetic changes to the Intertrader website. Having acquired Sigma Trading and Argon, as well as shifting its business strategy, retail trading now only accounts for about 10 percent of the broker’s revenues. Four years of preparation, it seems, pays off.

“The majority of our revenue is now split fairly evenly between three business divisions,” said Heffetz. “That includes prime brokerage activities, our dealings with corporates, professional clients and institutions. Real retail clients now only account for about ten percent of our revenue.”

Tackling the professionals

Those are figures that many other brokers would envy. Shortly after the European Securities and Markets Authority (ESMA) announced it would be introducing, amongst other things, caps on leverage and marketing restrictions, publicly listed brokers in the UK said they would be attempting to reclassify their revenue-boosting clients as professional. The reason for this was simple – ESMA’s rules do not apply to professional clients.

Plus500, for instance, said that it would be seeking to reclassify the 12 percent of its clients that contributed 75 percent of its revenues. A year later, amidst a staggering decline in revenues, the broker had only managed to reclassify 44 percent of those traders.

The desperate scramble to make sure ESMA’s regulations applied to as small a number of traders as possible reflected the business model that most brokers were running. Though they may have occasionally connected traders to market makers, most were trading against their clients.

No market making

Intertrader’s shift away from the retail market was somewhat ironic then, as the broker has not traded against its clients for six years. And, according to Heffetz, that’s what enabled his firm to easily transition into other areas of business.

“I decided back in 2013 that we would stop trading against our clients,” said the Intertrader CEO. “That was for ethical reasons but it also made – in the long run – business sense. Comparatively, we haven’t been able to make the money that our competitors have over the past couple of years. But now they are stuck with a b-book model and can’t get out of it. We aren’t. And that means that, on top of a professional client base that respects us, we can more easily expand into offering new sets of products and services.”

Though the broker has other plans, the main area in which Intertrader looks set to expand in is prime brokerage. Along with its acquisition of Argon, Heffetz told me that his firm has been making tweaks to its own operations over the past few years so that it can supply other trading companies with prime of prime services.

Breaking into prime of prime

The mix of acquisition and a shift in business strategy has – it appears – paid off. The firm is now making almost a third of its money from prime brokerage activities. But that doesn’t mean Heffetz and his team plan on slowing down.

“I want [Intertrader] to dominate the prime of prime space,” Heffetz told me. “We now have a full set of clearing and execution services. So you can trade via direct market access with us, on the platform of your choosing, and then we also provide you with those clearing and execution services.”

Outside of the prime brokerage space, Intertrader is also expanding its set of products. Previously, like most of its competitors, the firm focused its efforts on foreign exchange, contracts for difference and, in the UK, spread betting.

No commission-free stocks at Intertrader

But now the broker is going to be offering its clients options, futures and even structured products. Intertrader clients will also be pleased to hear the firm is offering cash equities to trade in.

“We are already offering trading in cash equities,” said Heffetz. “But it’s an area we plan on growing in. We have a set of B2B and B2C strategies in place to make that happen.”

Does this mean that Intertrader is going to follow eToro down the commission-free stocks trading route? The answer, from Heffetz, was a polite “no.”

“It’s true that a lot of other brokers are starting to offer commission-free trading in equities,” he said. “I also think that they are targeting lower end retail clients. That’s not a problem, it’s just not what we are trying to do. Our equities offering is, like everything else we do, aimed at a professional or institutional client base.”

Completing the transition

With a diverse array of products and a client base that is skewed towards institutions and professional clients, Intertrader in many ways resembles the sort of brokerage this author described a year ago. With ESMA’s regulations at their heels, I wrote, brokers were going to have to diversify their offering and/or start focusing on attracting experienced traders.

Though many brokers appear to be moving in that direction, only a few have managed to get there. Intertrader is one of them. And, having reached that point, I asked Heffetz what he envisioned the company would look like in the future.

“I see us as being the next IG,” he replied. “I don’t mean in terms of size or business model but in terms of revenue. You’re looking skeptical and that’s okay [note: this was directed at the author]. It’s not going to happen overnight. It’s going to take hard work and a lot of patience. But look at it from this angle, it took IG fifty years to get to its current position. We’re just beginning.”

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