Around 350,000 trades a day and a target of $40bn in volumes? The numbers are beginning to stack up for ADS Securities. Managing director Philippe Ghanem explains why the start-up brokerage has the edge on the world’s biggest players.
“I come in every day,” says Philippe Ghanem. “My weekend is Saturday afternoon. Success is the cherry on the cake, but you have to protect your business. Work, work, work.”
No-one could accuse Ghanem of shirking his responsibilities. He is managing director and vice chairman of ADS Securities, the Abu Dhabi-based forex and commodities trading firm, which is approaching its first anniversary. By any measure, the firm has had a successful twelve months of operation. Ghanem, and the company chairman, Mahmood Ebraheem Al Mahmood (an alumnus of the Abu Dhabi Investment Authority, no less) have hired a crack team that is seeing volumes that are frequently in excess of $4bn a day.
“You have to understand that it’s not easy to bring people to Abu Dhabi,” Ghanem smiles. “I was convincing people in an office the size of this couch. People thought we were being completely unrealistic. Who are these people saying, ‘we are going to build ADS Securities into an economic force’ from the corner of an office?”
No-one is calling him or ADS Securities crazy now. The immediate impression one gets from a meeting with Ghanem, an expressive, personable Swiss Lebanese who sits behind the requisite bank of trading screens, is that his work has barely begun. In fact, this small brokerage house has grand plans to compete on a global scale with giants such as Glencore, the commodities trading giant that listed last year for a total of $61bn.
So why is he so confident?
“The online and offline business, and brokerage, have been very, very challenged,” Ghanem says. “Why? Because this is a very lucrative business, and if you put yourself on the right track, you can make a lot of money. If you see the main big banks, their balance sheets boomed because of this business.
“So taking that into consideration, we decided that this company could only work in Abu Dhabi. Why? Because here you have a certain image of stability. Abu Dhabi is solid; it’s not a country that has burnt its cash.”
Warming to his task, Ghanem is quick to laud the UAE as “the Switzerland in terms of security”, adding that his local clients tend to prefer to keep their money within the region rather than farming it off elsewhere.
Other than the safe haven aspect, ADS Securities is also leveraging Abu Dhabi’s geographical position as a stop-gap between the trading hubs of the Far East and Europe.
“It means that today, a guy can open a position any time of day; he doesn’t need to wake up early and follow the equity market, and be limited to when he can short sell — here it’s open-ended,” Ghanem says. “So immediately we saw a very big impact. There is a constant demand, so it’s clearly another thing the world needs.
“It’s very volatile, and there’s a gap, so Asians sleep later and Europeans wake up earlier. This gap is very expensive, and this is where the banks and institutions lose money, or make money, but most probably they are vulnerable in this area.
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“But by opening a company here, we’re fully awake at this time, and I bring you the best professionals in the world. We allow the big institutions to have adequate liquidity at the right time, to protect their position,”
All this, of course, is taking place against a backdrop of almost comprehensive misery for investment bankers and traders on the global commodities and bond markets. The news has been bad in the US, but is — unsurprisingly — infinitely worse in Europe. The last-quarter results from the continent’s six leading investment banks showed a collective $2.1bn loss, with Credit Suisse alone taking a whopping $1.4bn hit.
Jobs are being slashed and bonuses have tumbled, due in large part to the febrile public reaction to austerity and the perception that blame for non-existent economic growth lies squarely at the door of the banking sector. Brokerages in the UAE have had a particularly tough time of it, with smaller players shutting down, and larger firms such as Shuaa Capital continuously leaking jobs.
However, misery, consolidation, or retreating from relatively frontier markets on the part of some investment banks are all likely to play into ADS Securities’ willing hands.
Perhaps the brokerage’s biggest trump card is its assets; it holds over half a billion dollars in capital, which has immediately catapulted it into the big leagues. What does this mean? These days, the cut-throat competition for flow is driving down margins hugely, which is great for customers. However, banks — mindful of their balance sheets — tend to only offer higher margins of as much as eleven percent to the smaller trading houses that aren’t adequately backed. As a result, the minnows are being priced out of the market.
However, when ADS Securities approaches the banks, Ghanem says the discussion is completely different.
“When you come with $500m [in capital] and you open up a prime broker agreement, we are the ones asking the questions,” he points out. “And this is where you take whatever you want to offer to a client by doing two things; you make the bank happy by giving them business, and you make yourself extremely competitive.
“Now I can offer one or two percent to clients in terms of leveraging — and this automatically opens up a huge market. You become the company of companies. So instead of this client going to London to open up a margin account, he comes to me.”
Right now, ADS Securities is seeing ever-growing trading volumes, helped by what Ghanem refers to as “a very good price on euro-dollar and one of the best prices in the world on gold”.
“There is a trend whereby the company is growing gradually — $1bn, above $2bn, above the $3bn daily,” he says. “This is good growth, and it doesn’t fall 50 to 70 percent the day after. Then you feel another volume — the market. You feel that people are actually buying through you and it’s affecting the market.
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“So we do have good volume, but we’re aiming for times ten. This company, with this capitalisation, and with this team? You can imagine, I didn’t bring all these people over here for $1bn — I can do that with three people. This company is here to absorb $20bn, $30bn, $40bn every day.”
However, ADS Securities will need to walk before it can run. Ghanem himself uses the analogy of the tortoise and the hare to describe both the growth of his own company and Abu Dhabi itself. Last week, the firm confirmed it would be adding corn, wheat and copper futures trading to its portfolio in March, to go alongside recent additions like oil, equity indices and gas futures.
For 2012, the target is to consolidate spreads from last year and close them off. Then it will continue to develop its prospects, with the eventual aim to build to “an average cruise volume of around $5bn per day” by the end of the year.
Much of that growth will be assisted by the huge investment that the brokerage is making into technology. In the wider community, only the biggest investment banks and brokerages have been able to cover the costs of hi-tech infrastructure. But if you can’t afford the next-generation platforms, then your volumes, and your ability to offer competitive rates, are also likely to plummet.
ADS Securities is currently working on segregating its trading platforms — one for institutional clients, and one for retail — and offering what Ghanem calls “a VIP touch”. Again, he believes that his firm’s youth makes it a more nimble competitor in terms of being able to provide bespoke products to clients, rather than having to rely on add-ons or revamps to legacy infrastructure.
“The platform we’re building is very light technology, so it’s easy to download and has all the information you want, plus a lot of surprises that we will announce accordingly,” he says. “But we’re focusing on one very important element — the engine, not the look. The engine determines how fast I can deliver you a trade.
“Today we have guys that do 35,000 trades a day — they are robots. I have ten of those — I will do 350,000 trades a day, bigger than anyone else. So to be able to do that, I have to have the engine that will back that up, and I think we have succeeded in that. But still, it’s like Formula One. You cannot just put it out there, market it and watch it. Every day there will be a problem to fix, and learn. It’s open-ended and technology never ends.”
With regard to the recent malaise on the UAE’s bourses, which have recently started to pick up after a miserable 2011, Ghanem points out that demotivation has been behind the grim volumes.
“Companies are making money, but it doesn’t mean that if they are making money it will go in their stock value,” he says. “People that want to trade, they want to speculate. Demotivation was created by wrong speculation. But I don’t think they lost trust — we don’t have any stories of someone in the UAE who bankrupted the company.”
And if it’s volumes in the local equity markets you’re after, then very soon ADS Securities will be filling that gap soon. As Ghanem himself says “if someone want to trade equities and we have to tell them to go next door, that’s not very corporate.”
“We’re talking about being a marketplace, being a market maker, even offering other services like asset management, and going to much higher levels in terms of the industry,” he adds. “When I say we’re going to be a fully fledged broker house and financial investment company, it means that what I say will happen. I don’t just announce things…we are going to grow.
“In terms of numbers, we are going to be above a thousand people, and in terms of volume and deposits? Right now, I can’t give you a number. But why shouldn’t we grow, if we do things right? The business is there, the volumes are there, and, of course, the economy is strong.”
As the interview finishes, Ghanem’s eyes flicker back over to the bank of trading screens. It may be 6pm, but it looks like he’s settling in for a long evening. Work, work, work.
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