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Going with the flow

Published in Automated Trader Magazine Issue 38 Autumn 2015

Flow Traders is one of the Netherlands' major success stories, with a valuation of some Eur1.5 billion after its IPO earlier this year. Automated Trader talks to co-CEOs Dennis Dijkstra and Sjoerd Rietberg about being a global ETP liquidity provider with a Dutch home base, and life since the IPO.

Dennis Dijsktra

Dennis Dijkstra, Co-CEO, Flow Traders

Automated Trader: How would you describe the Netherlands' trading environment?

Dennis Dijkstra: A big theme is transparency, lit markets and a fair, level playing field. I think that's also where the Dutch culture plays in.

Where we see transparency being a big game changer (is in) the regulators pushing dark trading into lit trading, more electronic trading, more trading on exchanges where people have an equal chance of engaging with order flow and providing liquidity.

Equity markets have historically been one of the markets where this has been the case, and FX, but also other new markets, like bond or currency markets, will move towards that direction. So I think the Netherlands, and Europe, is important and has been playing a leading role.

AT: From the Netherlands you've spread quite far globally, how are your Asian and US operations?

DD: The biggest innovation in the financial services industry is probably passive investing and exchange-traded funds. We have grown with the success of this low cost, transparent and very liquid underlying market.

In the late 90s, it started in Canada and the US, in the early 2000s Europeans adopted ETPs and we've been founded over 10 years ago after the first listing of an ETP here in Europe. We support issuers but also investors on a global scale across asset classes, across geographies. You need access to all the underlying markets, and we are present in 33 countries now and close to 100 exchanges or liquidity pools.

Sjoerd Rietberg: The opportunity really was the launch of ETPs in Europe and knowing they were a huge success in the US.

It was really about capturing the growth of ETPs in Europe initially, and later on expansion focused more on Asia because the US is already a highly liquid lit market.

In 2007, The Singapore office was founded to provide liquidity in the Asian region and to facilitate liquidity providing in Asian exposed ETPs in Europe. At the same time of course, we expected these markets to boom and grow with China and India market places. It took a few years longer than initially anticipated but we see huge growth now.

Sjoerd Rietberg, Co-CEO, Flow Traders

AT: Can you define ETP?

SR: We use it as a container term to capture ETFs (exchange traded funds), which is the biggest chunk, and we have ETCs (exchange traded commodities) and ETNs (exchange traded notes). But 85% of ETPs is an ETF.

AT: What should people know about your global operations?

SR: We provide liquidity in over 4,500 ETP listings worldwide. Roughly there are 12,000 ETPs in total. Last year we traded over €500 billion in ETPs, we do way more than 100,000 transactions on an average trading day.

We are always providing liquidity in a market neutral way. We have no directional opinion at all, completely agnostic to market movements. It's about making sure that we can manage our exposures in the most effective way, so holding periods can be a day, or an hour, whatever, but our market exposure will be continuously zero. The moment we do a trade we will instantaneously hedge ourselves.

In 2014, there's roughly $12 trillion ETPs value traded in a year, in Europe it's $800 billion, and in Asia it is some number roughly like that. In the Asian region, you see well over 200% growth in the value traded in ETPs.

AT: Your H1 figures show a big jump in trading income year to year (140% to €147.4 million), but a drop quarter to quarter (down 8% to €70.5 million) - what's going on behind those figures?

DD: It's always difficult to carve out what is normal market activity, and what value traded is caused by volatility. The general public has difficulty understanding what happens when volatility occurs. For us, it is business as usual as a liquidity provider, but the benefit for us is that trading activities increase by multiple times, but also that margins on exchange tend to widen. We benefit from revenue capture.

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