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Metals evolution drives Marex Spectron strategy

Keywords: Tags  Marex Spectron, Simon Van Den Born, LME, London Metal Exchange, broker, JRJ Group, John Tompkins, Andrea Hotter

NEW YORK — The changing nature of the metals industry has been behind Marex Spectron’s transformation from a transaction broker to a company that guides clients by "creating opportunities through investment in technology and analysis."

The transition of Marex Spectron’s business model began around 2011 following a period of internal analysis, said Simon Van Den Born, the company’s global head of metals. The London-based company determined that metal clients were more likely to be a hedge fund or asset class manager than a traditional vertically integrated hedging company, as had been the case in the past.

Marex Spectron is not seeking to be a pure transactional broker, Van Den Born told AMM in an interview. It also wants to guide its clients by creating trades and opportunities through investments in technology and analysis. "Alpha is tough to find and it’s no longer dependent on doing one thing—say, trading faster, or a single type of trade; that does not get the right combination across your interaction with a market. We can put everything together, from market access to unique market analysis, and correlation across assets to clearing, while I think others struggle with that," he said.

"To have the breadth of products to offer to a far more horizontally structured asset class, we needed to change the way we operated. Our parent, JRJ Group, has been able to morph us from a traditional broking company of the 1990s into a solutions-based transaction house of the 21st Century," Van Den Born said.

Marex Spectron, which was formed following the integration of Marex Financial and Spectron Group in May 2011, is majority owned by JRJ Group and partners Trilantic Capital Partners LLC and BXR Group.

When JRJ Group took over Marex Financial Ltd. in 2010, the company’s metals team numbered around 30 people, mostly focused on London Metal Exchange membership. The metals division has grown to around 50 staff, with offices added in Hong Kong and New York.

"The client in today’s world is crying out for a solutions-based broker, a transactor, somebody that can offer a good level of transparency yet at the same time a high-end product, and in the post-crisis era that level of integrity is where Marex Spectron feels it can create a niche in the marketplace," Van Den Born said. "We are large enough to provide an overall service but nimble enough to ensure that our cost base is low, our transaction costs are transparent and affordable to the client, and our level of service can be consistent. In light of the regulatory and cost-driven environment we are in, Marex Spectron is of a good size and can definitely perform in this light."

Van Den Born joined Marex Spectron from Valhalla Capital Advisors at the end of 2010 after serving at Goldman Sachs Group Inc. from 1994 until 2002. He replaced former global head of metals Gavin Prentice, who became managing director until he left the company in March.

One of the big new pushes for the company has been its market analytics product, started in 2011 and run from London by Guy Wolf, former co-portfolio manager at European equity fund Oxburgh Partners LLP. The market analytics product is focused on providing modern analysis of pan-market correlations along with investment proposals.

"It’s something we believe is low cost, highly scalable, very tailored to each client and applicable in metals, as well as across the spectrum," Van Den Born said. "Rather than be just a transactional broker, what we want to do is create a more franchise-driven relationship with our clients, and then the dialogue becomes focused on how we can work in unison rather than just being told to purely transact."

Changing the mindset of clients isn’t easy, particularly given that many clients traditionally believe banks provide the best pricing and risk models, "but actually that isn’t necessarily the case today," Van Den Born said. "Through our distribution network, we can price as effectively as banks without taking the same risks and offer the same transparent service to clients—that is where we feel we can provide a niche/edge on the marketplace. Reception to the service has already been very good."

Market analytics is available through an Internet-based portal on the company’s website.

Marex Spectron has made "huge investments" in technology, Van Den Born said, partly in order to be prevalent in China and Hong Kong, where a much younger, technology-oriented market has developed.

Its metals team includes 10 people in Asia accounting for 35 percent of the division’s overall business. This year, the company has seen continued record months in terms of the percentage of its overall revenues from Asia.

"In light of the sale of the LME to Hong Kong Exchanges & Clearing (Ltd.) last year, it’d be natural to assume that the axis of power in the metals community is going to gravitate more towards Hong Kong and less from London—we see that shift in our own business, and that’s why we’re looking to increase our services there," Van Den Born said. "In Asia you get both the industrial clients, who haven’t gone through the vertical integration process that they have in the West, and a burgeoning investor class. Both ends of those markets are interesting to us."

There is a staff of six in New York, up from zero in 2010. "We have a very different interaction with metals than in 2010; it’s far more global, far more of a franchise business than just essentially the closed-door business that it was three years ago," Van Den Born said.

Marex Spectron estimates that it currently accounts for about 20 percent of LME Select volumes vs. around 6 percent in 2010.

While electronic trading has become an important part of metals trade flow, Marex Spectron has retained its ring dealing membership of the LME, which allows the company to trade from the open-outcry floor. "We believe the floor is a conduit for clients and transparency, and acts as a good filter to some of the fat finger type activities we’ve seen in purely electronically driven markets; we tend to see less of that in metals because it does act as a buffer," Van Den Born said. "We believe that even as the market ownership structure changes, the floor can find a place. But it’s incumbent on us to make sure it continues to be a center of liquidity and pure pricing for clients and an efficient way of accessing those services."

The company’s LME floor team, run by John Tompkins, has seen a fourfold rise in revenue since 2010, Van Den Born said. "To us, the floor acts as a liquidity pool, it’s a hub from which we can then put pieces of business together" for clients in other regions.

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