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Welcome to The C-Suite, a monthly interview with leading executives in the retail trading industry.
This month we speak to Robert Van Eyden, who just left his role as South Africa CEO at IG Group.
Robert was previously CEO of Barclays Africa Group Stockbrokers and Global Head of Research at Standard Bank. He’s also the author of The Money Fountain and Badass Trader, the latter of which was published earlier this year.
We discuss blackouts, new market entrants and what brokers are doing in a country that’s become increasingly popular over the past couple of years.
Let’s just get one thing straight – are you a badass trader?
I’m not quite sure about that but at least I’m a profitable trader. It’s been quite nice actually the past couple of weeks, it’s the first time I’ve been trading full time and for money in a long time.
I think honestly I’ve made all the mistakes you could when trading and the book is about how to avoid all of them. So yeah, to go back to my initial point, it’s really amazing again to remember how all of the emotions take hold of you when you are trading. It’s easy to forget.
So joking aside, that book actually seems to have done really well. You know I saw from your posts how it was on some bestseller lists and you’ve been invited on different radio shows and so on. Does that translate into good marketing for the broker you are working for?
So in theory yes, but in practice no. I think it was probably a timing thing, where it has actually done well and you did see lots of opportunities arise. But I think it didn’t fit with what IG’s strategies were at the time, so not in practice if you see what I mean.
Looking at South Africa, I find it interesting because, on the one hand, you have average incomes that have gone down over the past decade. You read something like Truth to Power and it just paints such a poor account of public services and corruption. But then at the same time there are so many brokers going there. Other people seem really upbeat about the country. How do you square that circle?
It’s a good question. So I think on the positives, there’s been huge population growth which is distorting the numbers slightly – so it’s not as bad as it may sound on a top line basis.
On the other hand, you do get people looking to trade for the wrong reasons. So when you have a lot of poor people, there are also going to be lots of people looking for ways to improve their lives and they see trading as one of them. There’s also a dark side on social media because in South Africa, like in a lot of countries, you’ve got the scams going on and the flashy cars and whatever. So that plays into the desire of those people to get more money. And that’s one reason why you’re still seeing a huge number of entrants into the South African market.
The other component is basically what large institutions and corporates have done in the past. They use South Africa as the hub for the rest of Africa. So Webull entered South Africa a couple of months ago as a hub for Africa, rather than just the country itself.
That’s not a new phenomenon really. You look at Coca Cola, IBM, Toyota and so on. They all have their centre of operations for Africa here.
Staying on the whole being negative theme. Something I always wonder about is that if you have rolling blackouts, does that mean your systems go down and/or your clients’ systems go down? What is the impact of that?
I’ll address it from both sides. So if you look at it from the broker’s perspective, the catchphrase is load shedding. How do the brokers deal with it? Most buildings where brokers are, they’ve got generators, so the generators would immediately kick in if there is load shedding.
So from a broker perspective, the building generators kick in and the systems continue going. We also get schedules in terms of when the load shedding occurs. So it hardly ever occurs randomly and you’ve got a fair idea of when it will happen. You know, there’s an app that will send you a notification and say, ‘from 12 o’clock to 2 o’clock you’ll be getting load shedding.’
So I think from a broker perspective and even the other financial institutions in South Africa, we’ve had this for the last 12 years. I must admit the last six months have been quite bad. But we’ve coped really well. We’ve never been in a position and the JSE’s never been in a position, that we had to stop markets for trading purposes. So from a broker perspective, money is thrown at the problem through generators.
And then, for example, where I’m living at the moment, I generate about 50% to 60% of my power through solar. And I think a lot of people have learned to live with that. It’s not ideal. On the plus side, it seems it’ll probably get a lot better in terms of a lot less load shedding going forward.
Now from a client perspective. Clients probably have a similar set up, if they’re using their desktops, they would either have inverters at home or a UPS – an uninterrupted power supply – or potentially like me, solar power. They can carry on with their lives. And that’s really what people do, they carry on with their lives.
But the big market in South Africa does not use desktop, they are on mobile. So they trade through mobile platforms and that’s why that offering is so important in South Africa. And that is 24/7 on. It could happen that a mobile tower might be down, but then it just jumps to the next one.
So I’ve never been in a position where we had a total market blackout, you know. Not from the broker side or from the trader side.
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That sort of ties into my next question, which is what does the average trader look like in South Africa? I mean, you were at IG and I think if you look at IG’s UK client base it’s probably higher end, wealthy guys, maybe they worked in finance before. Does a similar profile exist in South Africa?
Right, I would say it’s really volume or value. So for the value clients, like you say you have premium offerings here because there are those higher net worth clients. You take them to the cricket and so on. That market does exist and, at least until now, they are often served by stockbroking divisions at banks or a few firms.
And then you’ve got the volume game, which is basically going after lots of clients. I think everyone who plays the volume game has got the same aspiration which is that eventually there will be a cohort of clients that do succeed and that do become sticky and that they do build up their portfolios. South Africa is not really different in that sense, right? I saw Robinhood is going to the UK and that is what they are doing.
So if you go to the volume business, it’s very much focused on FX trading. And then in the last couple of months, there’s been a huge push for indices trading. And then cryptos come in and out the whole time. With bitcoin making good returns in the last week or two, you’ll probably see a lot more entrants in crypto. And I think if crypto breaks the $50,000 level again, you’ll see even more entrants coming in, because everyone wants to be part of a good party.
You’ve been in the industry for a long time now. Is it really noticeable that there are so many new market participants in South Africa? Is it annoying the regulator at all?
If I talk about pure cash equities, definitely, there’s no need for more entrants. I think there’s actually too many market participants at the moment looking at retail trading.
But also there are a couple of challenges with cash equities at the moment locally. The number of listings on the JSE has been shrinking. We’ve been seeing delistings, so that is one challenge. And then the other challenge is that regulation has allowed mutual funds and asset managers to invest a lot more offshore, which hasn’t helped the local liquidity. So with the JSE at the moment, those are problems, a market that is shrinking and with lower liquidity.
Then to your question about the entrants in the South African market. Theoretically, every entrant should be approved by the FCA equivalent in South Africa called the FSCA, the Financial Services Conduct Authority, and they should get a license, then they can either offer execution or execution and advice or just advice only.
Unfortunately, we’ve seen certain participants moving into South Africa bypassing this. It’s the same thing in Europe at the moment as well. They are domiciled in Bermuda or in the Seychelles or wherever and then they sell their products here. So we do see that but we also see a lot of them that do follow the right road and that do get regulated and approved by the FSCA.
I think most clients, if they’ve been burned once or twice, feel a lot more comfortable if they go to a local broker because at the end of the day, it’s about trust as well. So if they’ve been burned, then the next level would be to find a regulated broker.
And in terms of regulation, there’s actually been quite a lot done. They are getting a lot stricter in terms of who gets licenses. So, for example, if you’re offering CFDs in South Africa now, you need an additional license. You’re known as an ODP, an over the counter derivatives provider. So you need that and the requirements are quite stringent and to maintain the license is quite stringent. With all of this going on, it’s more difficult to get regulated.
I think in general, the scams take on two forms at the moment. So one is that the broker is offshore. The client battles to get their money from the broker if they’re in a profitable situation. So that’s one thing going on at the moment.
The other one, which is a big thing globally, is for traders to get funded. The problem is in South Africa, there are unscrupulous vendors out there that ask you to pay a fee to get funded. Then they seem to be throwing out a lot of rules the whole time to stop you from getting the money. So we are seeing a lot of that at the moment as well.
And I think it goes back to your first question, you know, why South Africa? Because you’ve got about 40% unemployment levels and, as I mention in the book, it seems to be the easiest thing to make money trading and that’s what these funded trader guys sell. They sell the easy part of it. They sell the social media glitz and glamour.
Maybe this is a dumb question, but how are these people even getting any meaningful sum of money? Are the deposits not tiny?
I’ll talk about it from how IG managed things. At IG we focused a huge amount on wealth levels in the application process. So if you were not employed or you were earning below a certain amount per year, we would say this product is not suitable for you. Then even for those people that do get through, you have to look at where the money is coming from, the source of funds, all that good stuff.
Unfortunately the unregulated players don’t do that. They will accept you with $50. How the person got the money, that’s not their problem. That’s the volume business.
The other factor is leverage, so IG has much lower levels of leverage compared to other market participants, and the unregulated players will offer really high levels.
Are there any common mistakes you see brokers making in South Africa? Missing local nuances perhaps?
What a lot of firms don’t do enough, and that probably distinguishes between the good brokers and the bad brokers, is education. I think the first port of call that a client should be focusing on is how much education the broker is providing.
The problem with education is it’s a loose term. I’ve also discovered as well that you can provide a lot of education but some clients just ignore it flatly. So it’s not an easy one. But a lot of these new players don’t do that at all. It’s all about flashy stuff. They always talk about the ambulance and not the accident.
That’s a good phrase. Are there any other markets in Africa which you think look attractive from a broker’s perspective? Kenya and Nigeria seem to always be the popular ones.
It depends on the type of client. If you do move up the wealth chain, I would expect clients to probably be a lot more invested in cash equities, for example in ETFs, rather than in CFDs. It seems to be a trend.
The rule of thumb in South Africa for cash equity clients, about 5% would be trading leveraged or CFDs. That’s the numbers when I was working at the banks that you could bargain on. So I wouldn’t be surprised if it was similar in those countries.
Ok, well to finish off, any thoughts of what we can expect in South Africa next year?
I think we’re probably at the peak in South Africa with interest rates, so I believe we should be starting to get cuts from next year, which would bode well for the economy. I think a lot of the structural changes we are battling with at the moment, for example, load shedding, there are glimmers of light that things will improve and get a lot better.
So I think we’ll see GDP growth next year. It’s not going to be much, but you know, it should be anything from about 1% to 2%, when we’ve been growing quite slowly recently. And then if the global economy starts to see some of those trends as well, that does filter through to emerging markets and we are beneficiaries of that.
