Helping brokers manage risk in an evolving fintech industry

Finalto’s rebrand of TradeTech Alpha, TradeTech 360 and CFH reflects the move towards full integration and assimilation of these companies. The name Finalto describes the vision of the business: next-level financial markets, and reflects the company’s broad reach to every part of the world’s markets. Ron Hoffman, chief executive, Finalto, explores how the company is helping brokers manage risk in a dynamic market, and how innovation, regulatory changes and consolidation are shaping the fintech industry

For those unfamiliar with Finalto, how would you describe the firm and how do you position yourselves within the capital markets arena?

Ron Hoffman, Finalto

Ron Hoffman: Finalto is a pure fintech global financial services company, delivering services to institutional business and retail. Markets.com is a very well established brand we own and one of the best platforms and services on offer to retail customers. On top of that, we provide risk management services, tier one liquidity services and best-of-breed technology to institutional brokers.

Events such as the Archegos hedge fund collapse have raised questions about prime brokers’ risk management practices. How does your business manage this kind of prime broker risk?

Ron Hoffman: The current market conditions are very dynamic and require brokers and other participants in the fintech industry to be much more focused on risk management. We are still seeing important events like Archegos, with significant impacts on the largest banks out there. This shows that all participants are vulnerable to changes in the market and no one is 100% resilient. As a non-bank market-maker by definition, we are exposed to market risk and are highly focused on this. To perform risk management properly requires knowledge and expertise, as well as technology to lean on. We ensure we have the best people to manage that risk.

 

How do you see client needs changing in today’s environment? What are the key challenges they are facing and how do you help them to navigate this landscape more effectively?

Ron Hoffman: Customers want to be able to start trading and capturing opportunities in the market without unnecessary hurdles. They are demanding more flexibility and control. The fintech industry is driven by innovation to offer this to customers in a quick and intuitive way. 

This is the reason fintech companies have become increasingly relevant as competitors to big banks over the past year or so. Even with regulation becoming stricter, fintech companies are slowly grabbing more and more market share. This is an opportunity for big banks to be more creative and innovative. They need to be a lot more flexible and vibrant in their thinking to match the changing market, the demands of customers and the evolution of technology.

 

In his 2021 letter to shareholders, JP Morgan Chase’s Jamie Dimon acknowledges the rapid growth of fintech firms as a major competitive threat to banks, but calls for a more level playing field in areas such as regulation and market access. How do you expect these issues to pan out, and to what extent will they act as a drag on fintech ambitions?

Ron Hoffman: Big banks have an advantage over fintechs in that they have the capacity, resources and infrastructure – well above what you would see in fintech businesses – to adhere to regulation and cope with the changes more readily. 

Fintech companies are beginning to understand they will get more market share through investing in the infrastructures to adhere to regulation in leveraged trading. And those bad apples in the industry that do not evolve will undoubtedly fade out.

I think, eventually, the industry will undergo some sort of consolidation, where banks will acquire some of the fintechs to access that innovative way of thinking and new technology. They will then enjoy the best of both worlds with the flexibility and technology, in addition to the right regulatory infrastructure.

 

How do you drive innovation in the business? To what extent are you embracing trends such as artificial intelligence, cloud and digital, and where do you see the greatest opportunities for the firm over the next 10 years?

Ron Hoffman: We are highly focused on technology, and innovation is part of our DNA. We always look for the next big thing we can provide to brokers that will give them value and differentiation over others. We have always looked to accelerate growth and innovation through complementary merger and acquisitions transactions. So, over the years, we’ve often combined forces with businesses that have already started something innovative, adding our distribution and technology to grow together. You don’t have to invent everything yourself – there are many fintech companies out there building amazing products and offerings. 

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