Opportunity Knocks in the Middle East
Posted by Colin Lambert. Last updated: March 21, 2023
Colin Lambert talks to Richard Elston, group head of institutional at CMC Markets Connect, about the opportunities and complexities involved in providing a service in the Middle East.
Foreign exchange volumes globally have grown in recent years, but a recurring theme – especially while interest rates were hovering either side of zero in most major jurisdictions – has been a surge in activity in emerging markets. NDF volumes are up, as is local market activity in many centres.
One area to benefit from this increasing interest in diversity when investing has been the Middle East, which has long been seen as a source of funding, rather than a destination as such. This two-way interest was reflected in the latest Triennial Survey of FX Turnover published by the Bank for International Settlements (BIS), which indicated that average daily volume in the United Arab Emirates had risen to $66 billion per day.
To put this into perspective, that is an almost 50% increase from the 2019 BIS survey data, and means the centre is now the 16th largest in terms of average daily volume, a fraction behind Korea and The Netherlands. Moreover, prior to 2019, activity in the centre was not significant enough to register with the BIS collators.
This increase has not gone unnoticed at CMC Markets Connect, as Richard Elston, group head of institutional at the firm, observes, “As a result of the geopolitical turmoil of the last few years, on a macro level there’s a lot of institutional money flowing from all directions into the Middle East. For more than a decade, the UAE has been readying itself for this, but it’s only now that the real uptick in local activity is being seen.”
It is not only the geopolitical drivers that are in play, however. “There are multiple factors to consider here,“ Elston says. “As well as demand for better pricing and execution over the most commonly traded legacy instruments – FX, gold and oil – there’s also an expectation that more asset classes can be added too.
“As a company we have been operating in the Middle East for over 25 years and indeed signed our first ever institutional client in the region. But it’s clear that the scale of growth and evolving client demand means there’s still significant opportunity for our industry. Businesses who need our services are flooding into the area and we understand the benefits that having a physical presence brings, not just in terms of client relationships but also when it comes to working constructively with regulators, exchanges and other market participants.”
To Elston, this all combines to highlight the significance of the opportunity the Middle East presents both for the wider FX industry and more explicitly companies like CMC Markets Connect. “In some territories, many clients are comfortable working on a remote basis, but the Middle East is an area where the importance of a personal relationship cannot be valued highly enough,” he says.
Overlaying the relationship aspect of the business is, inevitably, technology, for this is a region with sophisticated and tech-savvy traders and investors. “Unlike some other market participants, it’s important to stress the fact we already have a well-respected, internally maintained technology platform,” Elston observes. “It’s not only operationally robust, but the structure we have adopted allows us to add new instruments quickly, being responsive to client requirements.”
Better technology and more electronic trading has long been associated with volume growth in FX markets especially, and the Middle East is unlikely to be any different. This means that the significant growth of the past six years may only be the beginning, something CMC Markets Connect is keen to help facilitate.
“In terms of technology providers, the region is seen as being underserved,” Elston observes. “That’s creating a significant opportunity for fintech specialists such as CMC Markets Connect to deliver genuinely bespoke liquidity solutions, which have the ability to integrate existing technology stacks with components of our institutional-grade platform on an open API basis, creating truly best-in-class solutions.
“A large number of banks and wealth managers in the region still operate using first-generation tech infrastructure, and that’s a challenge we want to help them address,” he continues. “In addition to expanding the tradable universe or tailoring reporting, we can redesign user interfaces or deploy a comprehensive institutional grade execution stack that accounts for everything from a traditional market order through to algo trading.
“Our scalability means we can onboard clients much quicker than some legacy competitors, whilst our bespoke configurations mean that we can then work with these clients to ensure aspects such as risk management and client reporting can be delivered in a way that meets their precise needs,” he adds.
Of course, technology and relationships require strong liquidity and product range. “Our competitive FX offering which has recently been augmented with our ability to deploy give-ups – sits alongside our very robust CFD business,” says Elston, who reveals this is soon to be expanded further with the deliverable cash equity offering CMC Markets Connect is rolling out in the region.
“In addition to covering mainstream equity markets such as US, UK, Germany and Australia, we are also working to add local listings to the tradable universe, too – something that inevitably comes with its own FX requirements,” he explains.
With the region delivering ever more meaningful FX volumes, it seems clear that the next few years offer a huge opportunity in the Middle East region as the market continues to mature. It is not a case, however, of just plugging in a solution and reaping the benefit as far as firms seeking to tap into this growth. “Brokerages wanting to make an impact here will have to be willing to invest, ensuring they can deliver a product set that customers actually want, rather than a simple cut and paste version of what’s available in Europe, the US or Australia,” Elston concludes.