In-conversation with Lord Peter Cruddas and Christopher Forbes | Launch 2023 | CMC Invest

A book, running risk to launching a platform. So I'll talk a little bit about some of those nuances and I think CMC is better for having a trader build a trading platform and manage risk and at the same time some of the features that we've added into CMC Invest as a result of that trading background. Disclaimers. So we talked a little bit about this but this is more the invest journey than the pure CFD journey. And this is testament to Lord Brothers' incredible journey of 34, 35 years in the market. CMC is not a new player to this industry. We don't... CMC Invest Singapore is new to Singapore but we have a 35-year heritage in building trading platforms globally, 12 offices, multiple licenses in some of the hardest jurisdictions in the world like Germany, Singapore, Australia, the UK. In that sense, we have a huge amount of trust with regulators and not only that, we have 1.4 million customers, so our customers trust us even more with their most prized assets which is securities and cash. Most importantly, in the last two years we've launched UK Invest and Singapore Invest. This is a huge milestone for the group and our diversification aspirations. Trust is a really important word for us. It's not just the word but it's what you give us every day and what we hope to as custodians of your assets is what we try and build towards. So specifically in Australia, we have seven major banking partners. All of you have heard of some of the smaller banks in Australia. They trust us. We have 1.2 million customers there and we're going to be doing the same thing in Singapore. We have fantastic content. I think content is often overlooked but trading insights, trade ideas, up-to-date information is one of the most important things in what is a bit of a misinformation universe we live in. Having information at your fingertips is incredibly important and Opto is a game changer for CMC in that regard. And by the way, Opto especially for retail-based clients is not only ideas but it's all thematic and nearly all ETF related, so it really is targeted at our retail audience.

One of the reasons CMC Invest is here is a few years ago the board led by Peter Matt who's in the audience today, they embarked upon a huge diversification project. We were number one and number two globally in CFDs but that wasn't enough. And like all great businesses, we decided to look at diversification. We already had the Australian brand and we decided that invest would be rolled out globally. But in addition to that, because Peter's ambitious, he thought what else can I do? So at the same time we're building an OTC options platform which is built, we've all tested it, it's superb. Matt in the Australian office is rolling out our crypto platform as we speak. It's live with our staff now. Wealth, I'll be able to share a little bit more about in the coming weeks. And we already have CFDs. The important thing here is if you look at some of the best companies in the world and we refer to them as FANG sort of universally, they all started off as a single platform like CMC just doing CFDs and FX. But if you look at their growth and evolution, they've all gone into streaming, cloud, devices, health, and they're now a one-stop shop. Well, that's what CMC's aspiration is. We will become a one-stop shop, a super app for our customer base.

Now we have our target audience. I think it's fair to say that the likes of POEMS are targeting a slightly higher affluent older Singaporean generation, the likes of Moomoo and Tiger are targeting a younger trading generation. CMC has a target audience but one of our most important target audiences that is in our opinion underserved is the female investing audience. It's 50% of this population and 50% roughly of Southeast Asia. And from what we're seeing, it's incredibly underserved with most brokers having under 4% of their customers being females. And in our view and through market research, we feel this is a huge opportunity. Not only are we targeting our affluent high net worth individuals but more importantly we would like to introduce women back into the financial services industry. And so after our short discussion with Peter, we will have a panel with five incredible athletes, investors, TV hosts, and we want to promote that. Lastly, this is the roadmap. So what you see invest and CMC now is going to morph within 18 months. It is a completely different business. Diversification of revenue streams, diversification in terms of who we serve, our customer base, countries, but more importantly product and features. We've not touched upon some of the core features that we're building now around on-ramp through crypto, Apple Pay for example. These are all in the plan and being built now. So happy to take any questions now or we can leave that to an audience with Peter as you see fit. If anyone has any questions, happy to answer. And if not, we'll go straight into the dialogue with Lord Cruddas. Right, Pam, shall we go straight in then? Thank you, Peter, would you like to come up?

Up, Chris, are you going to join us in this conversation? Work it's working. Here we go. All right. Wonderful. Well, thank you very much everyone for joining. I think, you know, Chris has just given a very nice overview of the history. As I was walking in, I also got a little tour of what was told to me as the past, present, and the future. It was a very interesting little experience. So congratulations on the launch here in Singapore. Jumping right into the conversation, basically we would like to get a sense of the change in the investment landscape and how CMC is working to address that market as well as provide the services for the audience. So as a start, there has been a lot of consolidation happening in the marketplace with social media players, with various different businesses entering this space to democratize, to provide access. What would you say is the driving force and the need for this consolidation market?

Well, well, before we get to the following questions, Chris, do you want to chime in on the establishment leading up to this point of the launch? Because I know you have been working on the business for quite some time.

So a lot of it was new to me. I probably wrongly assumed I know markets and trading and consumer behavior well, but learning the tech side was a real eye-opening experience and that was probably the hardest thing to get my head around. The governance, the board, licensing was not an issue. I actually found the MAS to be incredibly helpful, to be honest. I think they have a reputation for being staunch, and they are, but also very commercial. So none of that phased me. We were lucky because we had, as Peter said, a great tech stack already, so to leverage off that was very useful. And one of the examples of that is if you look at some of the brokers in Singapore, they offer three, sometimes five markets. Well, we launch with 15 straight away, and so that is a real game changer in terms of just giving customers immediate access. But otherwise, it was just lots of... I hate Teams, Microsoft Teams. If any of you use that, I can't stand that every single day. Yeah, too much Teams. And I like pace. Being a trader, you like pace. And I think that was something I've had to really learn through this 15 months, that not everyone can run at the pace I want. So that was the hardest thing for me.

Well, Peter, you had mentioned the electronic trading, obviously having that access at your fingertips, being able to make those trades very easily accessible to people and also diversifying the pool so that markets are more efficient. So when it comes to your platform and what you're seeing in terms of the trends for the marketplace, what are some of the newer trends and how is CMC addressing those?

I mean, apart from Chris's brilliance and thank you, I think it's probably an old trend like Peter said, but I think wealth on wealth tech in Singapore has been a big thing. To me, especially the Singapore market, it wants to put their money in a single portfolio and just sleep easy at night. And so if you look at the Singapore market, it's traditionally been very much of a yield play. And hence, if you look at the exchange, you've got banks, brokers, and real estate and REITs, and they're all just between 3 and 6%, 3 and 7% yield. And that traditionally has been a good play. But the emerging trend is really having sort of, let's call it money market funds or some sort of fund where you can put all of your money and just sleep easy. And so really that's the next cab off the rank for CMC, building that really simple portfolio where we will do all of the work in the back end and allow you to sleep easy at night. So that's the sort of emerging trend that we're looking at. In addition to that, it's things like having a great charting package. Everyone in the world uses TradingView. Having access to information, well, that's why we built Opto. So those types of trends we're certainly on. The most obvious trend is being able to fund your portfolio through crypto or an immediate on-ramp through Apple Pay, again things like that. They're in the works for us as well.

So what about the fact that because it's ever evolving, as you both mentioned, the educational aspect, bringing along your clients on this journey and then being able to provide them also with information and being able to leverage perhaps the resources you have to help your clients? Can you talk a little bit about that?

So again, I'll go back to Opto because unfortunately I know it's the easiest way to describe this. But Opto, it's a free platform for all of our customers. It's on our website, it's on our trading platform. It's completely free. They have some of the most amazing speakers on there every month, podcasts, videos, articles. And there's a small example of it on the wall here. But they really break down your investments into themes and they say, well, how do I... If you like Tesla, one of the best things about if you like Tesla is that you should, as an investor, understand well what are the components? Who makes the solder? Who makes the glass? Who makes the tires? Because Tesla doesn't do those things. If Tesla does well, there's a rising tide story for all of those component makers. And that's where something like an ETF or custom basket approach is incredibly powerful. And you can only get that through reading something like, and not exclusively, something like an Opto who will break that down for you. So that type of thing. And the other thing obviously is like everyone just buys an S&P tracker now and just leaves it in their portfolio and it represents 50% of their portfolio and they pick stocks around it. And that's exactly what Opto will help you do effectively, asset allocation for your portfolio within your CMC account, as long as you don't pick AR which I did.

Right, okay. Well, now you mentioned earlier the younger demographic and also the female demographic. My understanding is that the pandemic not only helped drive their interest and participation in online trading but also accelerated that trend. So I believe it was the CFA Institute that had said something like 80% of female investors who are investing are using online trading platforms and the age of female investors have lowered and they have said that they will or are wanting to participate in the near future within a year. So these kind of stats and data points, what do they tell you?

I think I used to do a lot of... I was forced by my previous company because I was a bit arrogant to do a lot of charitable work, and my boss would send me to India and Cambodia. I went to Laos and I sat on a board in Myanmar, and we were effectively giving microfinance loans. And during that process, what it taught me is that all of the borrowers of those loans, and I'd say all about 90% were women, and they would do community-based lending, and we would buy them seeds, fertilizer, whatever it was to grow crops, and they would sell them and repay the loans. But the default, let's call them the NPLs from a fin perspective, were almost negligible, like 0.12%. It showed me then that women were the ones that held all of the money. So the men would work, but then at the end of each week, the women would take their money because they knew the men would go and do lots of drinking and gambling in those countries. And so the women had all of the finances and they took all of the investment risk, and actually they didn't invest afterwards. So through that experience, it taught me that there is a huge, in Singapore but also Southeast Asia, opportunity with women. And what it means is that women are brave, they're shrewd, and they're underserved. And that's one of the main reasons we chose... if you look at the color scheme, if you look at our platform, it is not a black and white, it's not a black platform. There is research out there now which we've done that if you have a black platform, it's intimidating to women. So our platform is white. If you look at the color schemes, the fonts, everything's been intentionally designed around making it more inclusive for us and for women. And so to answer the question about female investing, we did a lot of research about why it's important to build our platform the way we've built it.

Your business based off of trading, based off of scale, obviously the health of the market is a big factor. You mentioned crypto earlier which at this point is you know a couple of years ago and we're past that now. But what about the fact that equity markets right now there's so much volatility? And if we pull back a little bit more, looking at the conversation around the macro situation, around policy rates, the uncertainties, the geopolitics, all of these factors which we also are seeing how it's impacting the IPO market. How do all those factors play into how your business is running and whether or not you need to address that?

So your aspirations are a super app. Yeah, I mean, that's the direction of travel.

Yeah, for sure. It's the only outcome for CMC. And you're kind of seeing now most apps going that direction. But are we also seeing a lot of consolidation in the market right? And I think TD Ameritrade is the first of many brokers that will be exiting, mainly because either regulation or they can't get the scale that Peter is referring to.

Absolutely. And what about the fact that now AI, robo investing, big data analytics? How do all those things factor in?

So we have started experimenting with AI internally, using more Bard than we are ChatGPT and Jasper. But for now, it's more of an asset allocation tool, but it is largely retrospective as opposed to forward-looking. It uses back data to predict future trends in our asset allocation tools. So we're not, it's not being utilized fully yet. But obviously there's things like chat functionality which ourselves, Tiger, Moomoo have all started implementing, and that is AI-based and ChatGPT. The only thing I would say to Peter is I was watching Chamath, who is a big investor and original Facebook founder, and he believes, and I think this is true, that AI is a little bit like the refrigerator. The refrigerator was invented but it's really cheap. There's no money to be made from selling fridges, but the money to be made is what you put inside the fridge: Coca-Cola, your butter, your cheeses, because that stuff has huge margins and everyone in the world uses their fridge every day, but you can't make any money from fridges. And that's a little bit like AI. AI in itself is a wonderful thing, but no one's figured out how to really monetize it yet. What is the stuff that goes inside or around the AI? And that is a bit of an unknown. And I agree with Peter, we're still at its infancy to be able to really utilize it other than to help, you know, it's a great marketing gimmick for now, but it's not fully utilizable.

Let's talk a little bit about we are here in Singapore, we are in Asia Pacific. Given the current environment in investments, I come from a commercial real estate firm at the moment, so the environment that everyone is very concerned about is in the US there is a lot of credit risks, there's banking crisis concerns, and as a result there might be a lot more investors looking at Asia at the moment. When it comes to your platform, when it comes to growing your footprint in Asia, how do you view Asia and maybe specifically Singapore in that global context?

I mean, I think it's in my view, I've been in Singapore for about 11 years now and I've watched, if you hear this the right way, I've seen the Lee Kuan Yew era, I've seen the post-Lee Kuan Yew era, and then the post-COVID era. And I think there are three very different government styles and different interest rate environments between all three of them. And the interest rate environment worries me tremendously because you can get paid 5-6% on your cash risk-free. To put that in the stock market, most retail investors will get 6 to 7% and you take a lot of risk. So there's no equity risk premium in the stock market right now. And that is of concern to me. The other, to come back to the other point, is I think Singapore is the hub, sorry to say this about Australia, but I think it is the hub for Asia. I think it used to be Hong Kong and I now think Singapore is the hub for Asia, not just Southeast Asia but Asia. And that's a huge step for Singapore. I think Japan's too domestic and Australia is largely domestic. And I think therefore Singapore, through the government and through the regulators, has done a great job of making this a huge hub. And you can see some of the big banks have moved a load of their staff from Hong Kong to Singapore and started making this their hub, family offices as well. So I think the future for Singapore is incredibly bright. I mean, within the group, the Singapore office is really flourishing right now, and that's largely down to Kurt and Matt. And I think that's a kind of testament to where I think Singapore is and what the potential is here. So I'm not worried about Singapore. I do have concerns about real estate in the US, very different picture here.

One thing that we haven't touched on, and also feel free to help me steer the conversation, maybe is on currency front. Because there is such a strong connectivity in terms of FX, the weakness in the currencies across Asia with policy divergence. Is that something that goes along with volatility that is opportunity?

Yeah, so FX is one of the strongest asset classes that CMC handles on the CFD side, certainly. We're very strong in FX. On the invest side, it's less important because the business model is completely different. Is it an opportunity? For sure. But I think with the conflict in the Middle East at the moment, broadly speaking, oil and dollars are pretty well correlated. And I'm pretty long oil right now, or I would be, and therefore I know what I'm doing with dollars, and therefore I can guess what I'm doing with the rest of my currency base. So it doesn't have a huge impact. I think the only biggest thing it has an impact on is deflation and inflation of how you import. And to be honest, there's a bit of a trade war going on anyway globally, fought mainly between two or three countries. But again, Singapore we're largely isolated from it. And certainly from a platform perspective, it just helps us because as Peter says, volatility generally speaking, and certainly in CMC's case, it should be your friend if you know how to use it and if you do your own research. Volatility is not a bad thing.

In terms of some of the talking points I prepared, I think we covered most of it. Is there anything else that you'd like to talk about?

So Mel, are you okay if we move on? Oh, we have a break. Any Q&A? That's the point. Can we do Q&A before we get a drink? I know Lord Cruddas is here. I know you all are waiting to ask a question. Any hands? Yes, we do have one.

Hi, can you hear me? Sorry, I have one. I missed the beginning of the panel, so apologies if you did cover this. But what I'm interested in, I work in financial literacy space with CMC Markets Singapore actually. But one thing I'm interested in is what you see the future with regards to young people and their investing interests, because my experience is they're quite interested in very different things. And you talked a little bit about blockchain and they still talk about that actually a lot. And I'm interested what you think they're interested in, because I see a lot of less of the long-term thinking and long-term strategy.

If I'm hearing right, it's like why are young people investing now? Is that so? I think every... I mean, nothing to add to Peter other than I think from an education perspective, they are taught in schools and parents, financial literacy has increased dramatically. Access to content has increased dramatically, especially through the internet. But I think it is important that young people do start investing very early, almost as soon as they can. I mean, you might have to pay off some student debt, but there's a balance there of paying off debt that's yielding 6% versus investing at 6% as well. So once you've paid off that debt, having something like a recurring monthly ETF purchase that will compound over time, and this is Warren Buffett's secret source, that compounding interest effect is incredibly powerful. And you can just do it, close your eyes, set it against your bank. Especially in CMC, we offer this. And the beauty of CMC or someone like CMC, I'd love it to be CMC but anyone, I'd encourage you to invest first. But secondly, there's no custody fees, there's no safekeeping fees, so that erodes a lot of your performance in a hidden way through most platforms. There's no inactivity fees on our platform as well. And so you can save or purchase your ETF, assuming you make money on it. The hidden fees in most platforms that you will never ever know about, that is what erodes your performance over time. And so I think again, the way we designed CMC is one, we got the benefit, our pricing plan reflects the scale that Peter and Matt have built, and at the same time, the plan reflects how we want people to trade on our platform. We want them to be with us for a long time, and hence we got rid of the custody fee, the settlement fee, the platform fee. I think that's quite important for investors to understand.

Does anyone else have any questions? And feel free to ask about the House of Lords as well.

Hello, my name is Justin from SE. So you guys have talked about becoming a super app, right? Now we have like DBS, UOB, all these banks trying to become super apps as well, and they have brokerage platforms on their apps. So how are you intending in the future to capture this market of people? Because right now in Singapore, I'll say maybe 70 to 80% of Singaporeans have the DBS app downloaded, but for CMC Invest, you guys are still new and not many of us know you guys. So what's the long-term plan to capture this market? And are you guys going to get a banking license or something in the future?

Yeah, no comment on the banking license. But I give a great example. Let's take the banks we talked about earlier, the seven. And I'm a bit, for NDA reasons, we can't talk too much about the Singapore opportunity, but we power some of those banks you just mentioned. They do not have exchange seats, they do not have the tech we have, they don't have the settlement systems, the pre-matching, the corporate actions. It's incredibly complicated backend. And to Peter's point, it's all about service. We service those banks. One of those banks you just mentioned is my customer. So it's not that we want to go out and compete with UOB, we want to be their partner. Yes, we want a retail brand, that's important to CMC, but we also our primary business is the institutional, or we call it 'insty' internally, but it's a B2B and/or a B2B2C offering. That's really our sweet spot. We know how to price risk and service customers. And I think that's actually quite important that we don't want to necessarily just compete, we want to partner with everyone in Singapore. And we actually have a couple of big, again I can't name the names, but we actually have a lot more than you realize here, but we're just a silent partner. And that's a really important thing to take away from this, that CMC is an institutional platform. So I'm not too worried about them. It's not a fair fight in that sense, but they've done a great job. And to be honest, and then coming back to your first question...

And then coming back to your first question, it's a really good point. When I thought of CMC before joining, I thought of CFD broker, and I think many do. And that's not an unfair assumption to make. Part of the diversification strategy was born from the fact that Australia has that same problem. What I can tell you is this: we have two different platforms because we believe that for our institutional offering, customers especially retail are not always suited to having CFD access. And the regulator, you can see, has gone from top left to bottom right in terms of access to leverage, financial literacy, onboarding journeys. So we feel that having two separate platforms is a better outcome. And interestingly, if you look at someone like IG Index, they've just copied us. They are now launching a separate platform specifically because they believe the same thing as we do. Now, is it easier to have a single app with CFDs and stocks? I'm not going to lie to you, yes it is easier. But the risk management that goes behind operating a CFD platform is incredible because of the leverage, because of the risk. A lot of those times, those CFD brokers are taking that risk on their books. That has huge balance sheet implications, risk management implications. And what you can have peace of mind knowing is that our invest platform is completely ring-fenced from that. Separate legal team, separate legal entity, separate balance sheet, separate staff. CMC has literally built two separate platforms. They do not talk to each other. So my personal view is that it's actually an edge for us because if you want to use our platform, you know that there is no balance sheet risk from cross-contamination from CFD. And I think actually that is one of CMC's big edges, especially in this environment, because you are seeing brokers, or I think we're at the start of seeing several brokers leaving Singapore.

Okay, thank you so much. For panelists, I've come out from the shadows. Pamela, thank you so much. I've got a lot to learn from a presentation standpoint. You're fantastic.