Marex Financial launched earlier this summer as the first non-bank issuer to enter the structured products market. SRP caught up with chief executive Nilesh Jethwa (pictured) to talk about the firm’s progress during its first months of activities, the challenges of being a new entrant and the plans going forward.
The goal, says Jethwa, is to grow Marex Solutions to become the world’s leading derivatives manufacturer.
“Our formula is to marry the best talent with the best technology, which allows our clients to benefit from high quality insight, flexibility and transparency, all delivered by long established industry experts,” he says.
Marex Financial is replicating this approach in the firm’s corporate hedging business as part of its Commodity Solutions team which was launched in July 2017, and has already traded US$7 billion notional “with clients all over the world”.
Solid foundations
Marex Solutions’ next step was to launch its own structured note issuer under the brand of Marex Financial Products (Marex FP).
“This we did in the summer of this year and we are lucky enough to do so on the robust balance sheet of a large multinational commodity firm, that is S&P investment grade rated and internationally regulated,” Jethwa says. “To launch Marex FP, we brought together a world class team from top-tier investment banks and coupled them with that same Derivatives Engine.
“The clients’ reaction has been nothing short of phenomenal. In our first four months we traded US$700m notional.”
Today Marex’s cross-asset Derivatives Engine powers both its OTC Commodity Solutions and its Marex FP structured notes businesses.
The cross-asset approach helps us to provide our clients with the most appropriate tool to express their view on the market
Being a non-bank issuer has played a key role in setting Marex apart in the market and differentiates its offering from investment banks as clients seek to diversify their credit exposure. Being a new business on a large balance sheet also provides benefits “from the agility and flexibility that you would expect from a fintech start-up, with the robustness and seriousness of a large, regulated, mature corporation," according to Jethwa.
“The cross-asset approach helps us to provide our clients with the most appropriate tool to express their view on the market,” says Jethwa. “From an operational perspective, the synergies in having one system that can manage all asset classes allows us to produce these products more cost effectively than having multiple independent systems, traders, structurers and operational staff.”
Target market
Marex FP’s initial focus will be on institutional and professional clients with no plans “to tackle retail or push out a public offering”. As a newcomer, says Jethwa, Marex FP is positioning itself as “a solution provider with a tailored offering, not a mass-market ‘one size fits all’ product manufacturer”.
The issuer of the structured note programme is Marex Financial - the main operating entity of the global Marex Spectron Group, which carries an S&P investment grade credit rating. The paying, issuing and settlement agent is Citibank; the products are cleared via Clearstream, are listed in Vienna and the underlying positions are prime brokered by Goldman Sachs.
“We chose this option versus setting up an SPV issuer to give our investors maximum comfort and protection,” says Jethwa. “As a new entrant in this market, we wanted to ensure that we had the most robust possible issuer set-up.”
Marex FP have already issued over 100 products in the first four months of activity and traded over US$700m of notional.
“This success is particularly satisfying as a new issuer trying to establish our business in a mature market during what are traditionally quieter summer months,” says Jethwa, adding “as things stand, the only S&P investment graded rated issuers of structured investment products are banks or bank affiliated entities”.
“The size and market share of our competitors in the structured products market suggests that there is room for other players. Our investors are actively seeking credit diversification, which are legacy scars from the financial crisis, and we think this is one of the reasons that demand for our paper has been so strong.”
Marex initial market focus will be Continental Europe “because we have the access and the knowledge, but we have plans to expand into other markets, such as Latin America”, said Jethwa.