Efficiency & Margin Enhancement

Procurement Review

Group had grown very significantly over several years inorganically with over 20 acquisitions
Very few group services were centralised and most businesses ran autonomously in respect of their own jurisdictions particularly in respect of procurement
It was felt that there were many opportunities in respect of non-payroll costs where a combination of:

Dedicated team of 4 people was set up to review all non-payroll costs across the Group
Locations were split into 3 tiers by size to prioritise jurisdictions with largest potential savings
Detailed trial balances were received from all jurisdictions
Calls with jurisdictions were held with the MD & Finance lead for each jurisdiction to constructively challenge each expense category
Site visits were made to all major jurisdictions for a more detailed work session with local management
Best practices were shared across the group and implemented where practical
All initiatives were logged and tracked for execution with implementation dates

Over $3.5 million (8% of non-payroll expenses) were delivered and a further $2.5 million of opportunity highlighted for further action

One of the major costs of equity trading was the clearing fee
The Group’s relatively small capital base made it necessary to use model B or fully disclosed clearing where the counter-party risk (and related capital requirements) was borne by the clearing agent
More asset manager clients were allocating trades across multiple sub- account where each allocation incurred an additional fee

Looking at the clearing costs the Asian clearing costs were amongst the highest so it made sense to look at Asia to go self-clearing
We identified a bank that was well positioned within Asia to help with the clearing and began negotiations
We looked at the capital implications as Hong Kong regulations required you to calculate counterparty risk from trade date meaning that we required regulatory capital of 5% ( +1% cushion to avoid reporting ) of all unsettled transactions
We had IT prepare daily reports that would enable finance to monitor the capital and advise operations when trades needed to go to the 3rd party agent to avoid reporting and/or capital breaches.

We successfully implemented self-clearing for a number of SE Asian markets.
The finance and operations teams worked closely to ensure no regulatory breaches
The clearing costs for Asian markets were significantly reduced

The regulatory rules in Germany require equity brokers to have a banking license should they want to have client accounts
Compliance with the banking regulations required significant infrastructure costs although the Company was not providing any “banking” services
The back-office platform that the Company used to clear transactions was provided by a third party
The Company was still in the early stages of development and trading volumes were far below the level required to break-even and no immediate solution to increase volumes

We opened discussions with the software vendor to see if there was any way to make the processing more efficient and reduce the costs for both parties
While no immediate solution was evident that vendor felt that a banking license would enable him to grow his own business faster and upsell services to existing and new clients
The Company felt that the fact its clients would now be “owned” by a third party was a relatively low risk given that there would be a significant cost reduction and clearer path to break-even

The business was restructured and the banking license and client ownership was taken on by the software vendor following the relevant regulatory approvals
There was no client attrition as part of the exercise
The losses of the German retail brokerage business were significantly reduced.

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