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CMC CFO on thriving in choppy markets

Euan Marshall, CFO of listed broker CMC Markets, reveals in an interview how the firm is capturing value from volatile markets

One of the big impacts of the coronavirus pandemic has been financial market volatility. This uncertainty has in turn fuelled a huge spike in the volume of trading taking place.

For broking firms such as CMC Markets, which floated with a £693m price tag four years ago, a high volume of trades is good for business.

But for Euan Marshall, who has been CFO of CMC for seven months, a very profitable quarter can only be seen in the context of a continually changing landscape.

In recent years, a combination of regulatory changes and a slackening of trading volumes, has seen CMC continually adapt its business model to ensure profitability. In the nine years he has been at the firm, Marshall has played key roles in supporting this changing strategy.

CMC, best known for a suite of trading products aimed at retail investors, including spread betting and CFDs (contracts for difference), a form of derivative trading, began to diversify into a wider product set, with more institutional clients, by the time Marshall joined.

The biggest leap forward for CMC came when it listed in 2016, which Marshall says as well as allowing shareholders to sell some of their ownership, lifted the firm’s profile globally. “It improved our brand recognition, as we get in the news a lot because we are a listed company- which is really important given that we have retail and institutional clients.”

Marshall says the listing was also a watershed moment in upskilling the finance team to become much more supportive of the group by leveraging insights from data to create value in all market scenarios.

“A lot of the work we do is about leveraging knowledge across the company to understand what data is going to be useful for us in providing management information (MI) to the board,” he says.

To that end, finance is working with the different parts of the business to understand at all times what the group’s financial position is and how best to allocate capital to maximise returns across its product suite.

“We work very closely with our data scientists and quants (quantitative analysts) team to understand the best way of modelling our revenue going forwards.

“They’ll be monitoring and modelling how we monetise trading activity, looking at real time information. We will be helping them because we’ll be forecasting areas such as client numbers and trading activity, through longer time points, through days and months. It’s very much a two-way relationship,” he says.

In essence, Marshall’s role involves running a finance team that is deeply immersed in the wider activities of the firm.  “I work with marketing to understand how we’re aiming to improve our acquisition retention of clients and I work a lot with our trading and sales teams,” he adds.

Relationship building

Marshall says his ability to interact closely with other parts of the business through developing strong personal relationships was forged in a series of roles he occupied after completing a degree in economics and econometrics at the University of Nottingham.

At global bank Barclays, he joined a graduate scheme that operated a rotation system in retail and corporate banking, “that gave me a good oversight of working in areas including financial control, investment appraisals, all the way through to the commercial aspects of finance,” he says.

A move to Deloitte Consulting, worked in business intelligence, broadened experience across companies and sectors, which Marshall says was very helpful in acquiring different corporate perspectives.

“It helped me develop my softer skills because you were thrown in the deep end, you’re talking to clients, and you have to show the required gravitas, influencing skills, negotiation skills and when you’re on projects as well you have to also have the ability to lead a team,” he adds.

A return to banking at HSBC, as a senior business partner in the MI planning area of its European division, helped Marshall understand the links between finance, risk, capital and liquidity, he says. “That put me in a good stead for my role at CMC, because you get a good overview in a big bank of all of those aspects,” he reveals.

Leading the planning process, meant as well as interacting with HSBC’s investment bank, he also engaged with the private bank, retail and corporate banking divisions. “I got the opportunity to present to some very senior people at the group level,” he adds.

On arrival as head of FP&A (financial planning & analysis) at CMC in 2011, led by CEO Peter Cruddas, one of the City’s most high profile leaders who is also one of the UK’s biggest political donors, he found things were moving fast.

After overcoming the challenges of the global financial crisis in preceding years, when it was forced to trim its staff from a peak of 1,100, CMC had just launched its new trading platform Next Gen, and was expanding into new regions, including a recent acquisition of an Australian stockbroker prior to him joining. “There was a lot of excitement in the firm about where it was going, and the potential for an IPO in the future,” he says.

On the back of forays into more diverse offerings through more tech-focused acquisitions, the firm picked up big ticket stockbroking deals such as with a game-changing deal with ANZ Bank in Australia.

In the context of an increasingly diverse product mix, Marshall helped to improve the reporting and forecasting for senior management decision-making,  gaining him greater visibility across the firm. From there the financial control was added to the role. “That gave me a good opportunity to lead a global finance function, leading teams globally and a bigger team in London. I was also made responsible for the external audit, and became the main contact across quite a number of our banking relationships,” he adds.

High profile

CMC listed in February 2016 in the FTSE250, which the firm dropped out of due to a fall in market cap, but Marshall the firm expects to rejoin the index in June’s reshuffle. The share price launched at 240p, peaked at 276p in July 2016 and after some weakening has recovered to around 206p, giving a market value of just over £600m at the start of May.

A record year for profitability for the firm in the year to March 2018 was followed by a much weaker financial year as a result of European regulatory change for CFD trading and reduced market activity, culminating in a profit warning. Results to March 2019 showed net operating income fell from £187.1m the previous year to £130.8m as the number of trades slipped from 68.4m to 64.5m.

“The big impact for us was on margin changes- which just meant that clients could not trade with as much leverage, as they used to be able to. That meant retail clients traded less, along with subdued market conditions. Those two items were a big driver in our reduction in financial performance, so from the perspective of my involvement there, there was a lot of analysis done around the potential impact of the regulatory changes, that were coming through in August 2018,” says Marshall.

“One of the things we had to look at was our overall client base, how many would be classified as retail clients and how many would be classified or would be able to opt themselves to be a professional client.

“We did a lot of analysis on that and had to take the markets through an education exercise, at what the implications of those changes were, what we were doing to address those changes, and what the impact was going to be on the company itself,” adds Marshall.

By assessing how clients were trading, many trading less or holding trades for a suspended period of time, the firm reviewed its risk management strategy. “That was one of the things that assisted an improvement in our performance in the year that we’ve just finished now,” he says.

Marshall’s work on these projects led to him being named interim CFO in August after his predecessor Grant Foley left earlier in the year, and then permanent of CFO in November. Although Marshall’s predecessor had involved him in analysts’ presentations, there was still a baptism to come.

“The main thing I actually had to get more exposure to, upon him leaving, was actually doing what he was doing, being that face and the person talking to investors and analysts. The only way you get experience of that is by doing it. The first time I got to meet investors was June last year, and the first analyst presentation was back in November,” he adds.

Internally there was also a lot of big steps to take. “Although I had exposure to the CEO and the deputy CEO and the wider non execs across the board, all of a sudden had to make sure those relationships were strengthened very quickly. I treated the August to November period very much as an interview on the job, making sure I fostered those relationships as best I could over that period of time,” he says.

Eye of the storm

Even before Covid-19 had hit, CMC was benefiting from an uptick in client trading, but once the pandemic hit there has been a “massive interest in the market”, says Marshall. He says: “We’ve seen existing clients trade a lot more, clients that stopped trading have come back and started trading again, and we’ve seen a lot of interest from new clients as well,” he says.

But Marshall says that being able to address this surge in demand is only possible if CMC’s infrastructure can handle it, something he says is achievable due to operational resilience and scalability that the firm has been working to develop. “Our platform has the ability to deal with a very large volume of trade at any given point in time,” he explains.

“We want to make sure we have a reliable platform for our clients, ensuring its up time is as close to 100 percent as possible, because volatile times are when your clients need access to the markets, and they need it to be reliable,” he says.

As conditions change, and the intensity of market trading gradually eases off- although it remains high by historical levels- Marshall and the rest of the CMC management team are assessing different scenarios for the weeks and months ahead.

“We’re having a lot of discussion about how long we feel the pandemic will last for, which we incorporate into our forecasting. It has to be looked at through different scenarios, because we don’t know the time frame we’re working on,” says Marshall.

A key aspect of CMC’s approach was ensuring the firm’s global operation could function remotely, once lockdown was imposed. “Our traders, watching market moves on up to six screens, are all working from home. That’s a huge indictment of our organisational resilience,” he says.

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