Swiss brokerage targets EM treasuries, PBs via Arx platform subsidiary

Arx Financial Engineering Limited has been granted a Category 3A Brokerage Licence by the Dubai Financial Services Authority (DFSA) and has commenced operations in the Dubai International Financial Centre on 21 April 2021.  

The Swiss financial engineering boutique is seeking to deliver tailored solutions including structured products and specialised brokerage services to institutional and professional clients. 

“This is the highest category licence for non-banking institutions,” the firm’s CEO, Danny Skutelis (pictured-right), told SRP. The CAT 3A licence will enable Arx to do everything a bank can do - advisory, execution, and trading - but not taking on deposits and offering loans.  

Our background goes beyond barrier reverse convertibles and autocalls - Danny Skutelis

The company is led by Skutelis a former Goldman Sachs structuring executive who also worked in the alternative investment strategies team and the structured products sales team covering Russia and the CIS at UBS in London. He then moved to interdealer broker Tradition and structured products brokerage TFS Structured Products before shifting to Arx Financial which is a subsidiary of Swiss boutique CAT Financial. Giuliano Glocker (pictured-left), partner at CAT, is the main shareholder at Arx Financial Engineering. 

CAT FP provides structured products brokerage services such as best-execution via a multi-issuer platform of more than 30 issuers, investments and asset management solutions as well as an own issuance platform. 

Arx will focus its activities on Russia/CIS, emerging markets (45%) predominantly the Cooperation Council for the Arab States of the Gulf, known as the Gulf Cooperation Council (GCC), Asia/Singapore (10%) and non-US (five percent). 

The boutique’s offering will cover structured derivative solutions and structured products either flow and non-flow with a second leg focused on fixed income and a third line covering alternative financing.  

Private placements 

“Our background goes beyond barrier reverse convertibles and autocalls and we want to leverage the knowledge we have on bespoke solutions to build up structured solutions for large institutional and corporate clients,” says Skutelis.  

“We have created tools for our clients for them to enter an ISIN so that they can get a comparison by yield and credit rating for this position. From that we started developing other tools such as back-testing, forward-testing for structured products as well as volatility reports – looking at implied and spot vol over a period of time to be able to see when you have to buy or sell calls and puts.” 

For the financing business, Arx has several SPVs that were created for its clients with a full private placement issuance programme. The firm has worked with Swiss SPV specialist Gentwo to create the SPVs to serve clients that want debt, equity or securitised assets.  

“We have done mega yacht financing in the past covering US$250m worth of boats and private jet financing worth US$8-10m, as well as Hollywood movies which we securitised and offered to clients via structured notes,” Skutelis said.  

This kind of alternative financing transactions – commodity financing, trade financing - will not be an every-month occurrence because they are capital and resource intensive. But Arx is looking to have this kind of transaction at least on a quarterly basis.  

“Our bread and butter will be flow structured products targeted at the treasuries of EM banks and private banks as opposed to family offices and asset managers as CAT does in Switzerland. For these clients we can do hedging products, payoff optimisation, asset liability matching, or proprietary strategies via AMCs,” Skutelis said.    

Swiss touch 

Arx’s offering will be complementary to the CAT business in Switzerland which is based on “client custodian trading against the issuer as opposed to trading against the client”.  

“On our side, 95% of what we do is delivery versus payment [DVP] – any transaction a client wants to do we can facilitate for a fee,” said Skutelis. “For clients with a domicile or a custodian in Switzerland we can do through CAT which has a history and pedigree as well as very good relationships with issuers. For us that is an advantage as onboarding issuers can take time, so we cover that aspect with CAT.” 

In emerging markets, clients are extremely under covered and are less sophisticated than in other markets, and the culture is also different, so new entrants have to do business in a different way, according to Skutelis.  

“We want to grow organically and for that you have to have an ethical code. Our focus is not on trading many products and charging 2-5bps but on less liquid instruments where we can add value with our research and quantitative capabilities,” he said. 

The flexibility small boutiques have to make decisions is an advantage as they don’t have the same amount of filters investment banks face and they can also leverage their entrepreneurial culture.  

“On the flip side, you can be seen as the new kid in the block so you really have to deliver value and build strong relationships with your clients so that they come back to you,” said Skutelis. “Being associated with CAT is an important advantage for us because they have been in this game for decades. 

“We don’t have a factory approach and we can really work hand in hand with clients to respond and help them with real solutions as opposed to a one-size-fits-all approach.” 

Boutique approach 

According to Skutelis, investment banks can go around with their rev conv catalogue, but smaller players have to offer something else and get clients to capitalise on the full capacity a boutique can offer.  

“We have very strong quant capabilities and offer forward testing models and proprietary metrics for structured products which we will use for all our products to show where the risk is and to offer clients visibility of their products, and how likely they are to perform,” he said.   

“Investment banks are good at hedging and providing pricing, but they are not as good at innovation and adding real value to investors.”  

Arx approach will focus on developing bespoke solutions with clients and then go to manufacturers and “shop for the best price on something we have created, not something that is coming out of a shelf”.  

“This way we’re all happy: the client gets the service at a good price, the bank provides a quote and gets the trade, and we get paid for delivering the service and solutions to our clients.”  

Other key members of Arx include Giuliano Glocker will be responsible for the group’s operations in Switzerland and will act as board member and main shareholder via the CAT Financial Group; Vladimir Ayzen is our Chief Risk (CRO) and Chief Operating Officer (COO), current chairman of the board and as well shareholder, and formerly at JPMorgan and Citigroup in New York; Maurizio Porfiri, Group CIO of CAT Financial Group and Beat Hodel, former head of group risk control and a member of the executive board of Raiffeisen Switzerland, as an auditor and a risk advisor.