The UK-based firm moves to become a digital challenger to investment banks

Marex Solutions, the specialist derivative solutions division of Marex Spectron, has launched its own structured investment product issuance program for equity, credit, FX, commodity and fund linked notes.

After testing appetite for its structured investment products via third party issuers in 2018, the firm has moved to launch its own issuance capabilities.

“It is a UK issuance programme delivered directly from the balance sheet of Marex Financial, and therefore benefits from an investment grade entity rated BBB by S&P,” said Nilesh Jethwa (pictured), Marex Solutions chief executive. “We use Citibank as our paying and issuing agent, Clearstream as our custodian, Goldman Sachs as our prime broker and we list the notes at the Vienna Stock Exchange.”

The new program will benefit from the firm’s “tailored yet fully automated approach” and will be used to bring to market products such as equity autocallables, capital protected and credit-linked notes.

While some investment banks have noted a slowdown in sales in the past few months, Marex Solutions thinks there is room for a new issuer in the market.

“We see ourselves as a digital challenger investment bank,” said Jethwa. “We have seen the impact that challenger retail banks such as Metro Bank, Revolut and Monzo have had. Service levels in many industries have improved and become more personal and costs have fallen. We wanted to see if we can create the same impact in products previously in the exclusive domain of investment banks.”

Best of two worlds

Jethwa believes the reason this hasn’t really happened yet is that you either have “really cool Fintech companies writing great code, but have no balance sheet, and therefore generate little meaningful revenue as people struggle to accept their credit risk and the sell cycle to investment banks is very long” or you have investment banks with big balance sheets which despite spending billions on IT are actually very hard to turn digital because of legacy systems and enormous technical debt. 

“You can’t walk through a door of a global multi-national corporation in a pair of jeans with a cool app and expect them to sign,” said Jethwa. “These companies need to trust you. They need to believe you will absolutely honour any contract they sign with you and that your credit risk is robust.

“At the same time, anyone who is at an investment bank at the moment will tell you how hard it is to introduce any form of genuine innovation to the market. Internal bureaucracy has ultimately reduced their ability to move forward quickly and benefit from the technological revolution that other industries have experienced.

At Marex Solutions we have the unique combination of a Fintech startup working within the balance sheet of a large internationally regulated corporate. So you have the benefit of being a serious investment grade rated organisation, but you also have the agile component which allows us to reimagine service levels and quickly adapt to serve clients in a cheaper, transparent and more tailored way.”

“Our credit linked notes are backed by an entity with CET 1 ratio (a regulatory measure of capital adequacy measuring an ability to withstand losses) of almost 20% which is significantly higher than any of the major investment banks.” said Jethwa.

Cheaper and more flexible

In seeking to become a digital challenger investment bank Marex Solutions wants to be “the best in the world at making derivatives”.

“We want to make derivatives on any asset class, any payoff, quicker, cheaper and more flexibly than anyone else,” said Jethwa.  

Marex started with the OTC corporate hedging product line in July 2017 and started building up its capabilities and sales coverage. “We spent the first 9 months building the product and once we were happy with it we started to grow our sales team,” said Jethwa. “That has gone really fast and we are ahead expectations by some distance, in terms of revenue and products. We now have sales people in Canada, US, UK, Brazil, Paraguay and Singapore and we are finding it increasingly easy to attract the very best sales people in the market as clients start to recommend us. Within a year of our first client trade we had executed US$3 billion notional of derivatives.”

Marex launched its client facing OTC structured products app called Agile in April 2018.

“Agile goes beyond anything that is available in the market, including now adding a swaps execution capability.” he said. “With our new approach, we will be able to add any payoff, not just swaps. You go online, you click, you trade, you get the term sheet, it gets booked in the system, it gets reconciled in the middle office automatically, and the regulatory capital calculation, the accounts are posted to the ledger etc. We provide interactive portfolio analysis tools to clients at no cost. The whole life-cycle is automated. This is done on a cross asset, cross payoff basis, and is the reason our costs should always be lower than any our competitors.”

Marex wants to bring that level of technology and execution into structured notes. “At the beginning we are starting off with quite a traditional offering,” said Jethwa, adding that following the launch of the world’s first structured product on blockchain last year Marex is now offering a traditional version of the same product. “We are not a blockchain company, or DLT, but we happily serve clients in the way they prefer and can respond to that need fast. If you want an equity autocallable executed via Clearstream, we will deliver that, if you prefer to buy out notes via blockchain technology we will help you there too.”

Target market

Marex’s new investment product offering is aimed at qualified investors only such as asset managers, family offices and private banks, but not retail. 

Having built the capability the focus is on getting in front of investors, said Jethwa. “We have the products and now we need to build distribution,” said Jethwa. “That is the big push for this year.”

Jethwa sees three big differentiators on Marex’s offering. “First of all our cost of production should be significantly cheaper than our peers through the use of technology and the way we have designed our systems and we seek to pass that saving onto investors,” he said. “Second, we have a robust, investment grade credit. With a CET1 ratio of almost 20%.”

The last one, according to Jethwa, is Marex’s range of underlyings which he believes “is the biggest in the world”.

“A lot of investment banks concentrate on the largest and easiest to manage underlyings, but that limits choice and opportunity for the investors,” said Jethwa. “We offer products on 8,000 equities, 300 indices and ETFs, around 2,000 credit, 300 FX pairs, probably the broadest commodity offering in the world and even crypto assets. We have the most comprehensive palette of underlyings with full payoff flexibility. If you combine that, with the service, the technology and the robust credit risk, I think you have a very complete offering.”