Vincente del Bosque once quipped that if you watch a match where Sergio Busquets plays, you can watch the whole game and not see Busquets, but if you watch Busquets you will see the whole game.
StarHat seems to play a similar role in the brokerage industry. Two executives have independently made jokes to me along the lines of ‘they don’t exist but are everywhere’.
So do they exist? We talked to the company’s CEO Chris Ward to find out.
StarHat is a very ‘behind the scenes’ company. So can we confirm that you actually exist?
We do exist. I think our customers would like to keep us more behind the scenes. We are ‘NDA’d’ up to the eyeballs, so we can’t discuss the specifics of what we do that much.
We’ve been doing this a long time now – 30 years – and most of our clients have come via word of mouth. So we haven’t had to do much sales or marketing because of that.
We are going through a period of change though. We are going to have more of an online presence in the near future.
What is your background? How did StarHat come about?
I was spotted in university by IBM and then hired to work with them. I worked with them doing digital streaming and security technologies – doing cryptography, for example, which has been more useful than I assumed it would be at the time.
That got us into working in the City when the UK market was going electronic. So when the London Stock Exchange introduced SETS, they needed a security software supplier for their clients to connect to their networks. We were one of two suppliers that they picked.
We got that because we’d also been doing price streaming over satellite in those days. That actually pre-dated the internet, which should give you an idea of how long we’ve been doing this.
One of the first things we did was also GNI Touch, which was the first retail CFD trading platform in the world.
So what sorts of companies are you working with primarily at this point?
Exchanges, brokers, that sort of thing. We started on the institutional side. So we did a lot of work with inter-dealer brokers, where they were breaking up their large orders and working them through the order book. We were working with the LSE, although we’re not currently doing that. We also take on work as a consultant to exchanges.
On the retail broker side, are people coming to StarHat for a specific product or a range?
We’ve ended up with a hybrid model where we have a lot of ‘off the shelf’ products. So if you are looking for MetaTrader products or bridging technology, for example, we have those as off the shelf products.
In most instances companies are coming to us because they see our engineering is better than our competition. They run the test and see it’s faster. It’s also engineered to be less invasive on MetaTrader.
MetaTrader is a very sensitive animal. If you use too much memory, for example, you can cause bloat and other problems. Our tech is very light touch and can work in that environment.
The other point is that we can consult on how to integrate our technology into their set up.
So it’s a mixed bag, we have people that want off the shelf products, others want consulting, and then you have some other companies that want the whole package.
Where we have not been as active historically is in SaaS. We are a software vendor. We license the software to people and they run it on their hardware.
That is changing though because customers want an end to end solution. So we have to provide the hosting for them and so on. That’s something we’ll be offering a lot more just because the clients want it.
One of the points I would note on this is we do not believe in volume fees. In IT terms it’s a fixed cost, so those don’t make sense to us. Obviously that is attractive to a lot of bigger clients given the amount of flow they are seeing.
A trend I’ve seen over the last 18 months is more products on the risk management and bridge side that seem aimed at helping brokers risk manage flow in a more sophisticated way. Is that something you have seen demand for?
Definitely, yes. Our technology lets you create synthetic prices. So any pricing coming into our aggregator, any instrument, you can create a basket, a portfolio – all that sort of thing.
Another point is how you manage post-trade risk, so how you hedge that risk? There is absolutely demand for people that want to have more complicated hedging strategies. It’s definitely no longer just A book or B book.
If you look at smaller players, do you think they have the personnel and experience to be able to use these tools?
Yes. I think you’d be surprised at how automated so much of this already is. I mean, if you think of the volume that big companies are doing, they would just not be able to manage that with a lot of manual intervention – it has to be automated. So a lot of what dealing desks are doing is managing the outliers or unusual activity. They are not taking a view on every trade that is coming into the desk.
What sorts of new technologies are you seeing demand for?
We are basically a bunch of techies and so it’s great that this industry is always evolving.
Crypto is something that people want and we are integrated to provide those services. But more it’s a case of being able to offer products via alternative means, so trading on the blockchain and using digital ledger technology to settle trades much more quickly.
I always think crypto is just a way of for people who are in countries that have capital controls, are sanctioned, or have hyperinflation to access payments and dollars. Is crypto ‘legit’ then?
Crypto is one thing but if you look at the underlying technology, it’s a database technology. If you have a back office environment where people can clear and settle instantly, that is a massive evolution from CREST and SWIFT. They are still using technology from the 1990s – I know because I was working on it.
Blockchain for blockchain’s sake will disappear but I think, at the end of it, we’ll be left with the technology and how you apply that to our industry. We think we’ve done that. We’ve made an investment into the future. Clients are already using it – it’s got speed, reliability, resilience. Some clients may not even realise they are using their own private ledger.
Can you be more specific on how you are using it? Is it just settlement and clearing?
The problem that we had with the first iterations of this technology is that there was counterparty risk within them, because they were one directional. If I buy your BTC, you send it to me. But the dollar route back to you is separate.
What we thought, when looking at our back office, is to build an asset swap on the blockchain. Typically this is one currency for another. So we created a blockchain that doesn’t ledger coins, it ledgers the transactions themselves – so it automatically does asset swaps. Any asset, digital security, you can swap them instantly and with zero counterparty risk.
So who is asking for that? Is it existing clients or new types of clients?
A mix. I think what we did was unusual in that a lot of companies building this technology were new to market, which we obviously aren’t. They were raising a load of cash to build something and then it turned out not to be as good as they had promised.
We did it the other way around. We built the technology and then took it to various ‘friendly people’ to see what the level of interest would be. We got feedback on that initial product because there were things we needed to fix. So something like putting corporate actions on the blockchain, which is not simple to do.
It always boggled my mind how many problems those cause, that an FX conversions.
Exactly, but we are already seeing bigger players using the technology internally to solve these sorts of problems. There are already lots of use cases for it.
But to go back to your question, like most of the growth we’ve had, this came back to word of mouth. People would tell others about the solution we had and then you get more people coming to you asking for it or asking if you have something else that would fix a similar problem.
To be honest, I’m surprised you are saying this because usually if I speak to someone in your position they say crypto is…well, I’ll be polite and say ‘nonsense’
Crypto is nonsense. The underlying technology is not. It solves a lot of the back office problems companies have been facing for the last 30 years.
Are there any other trends that you see in the market at the moment? What are people coming to you and asking for?
I think there is a fragmentation away from MetaTrader. Lots of people still want MT5 and there has been an uptick in that over the past two years. But the big change is that people now want alternatives to that.
There is also a move to wanting on-exchange products, so futures and options basically. We have a lot of experience in those products. MetaQuotes does let you add them, but there is a lot more needed behind the scenes to do so and that can be a headache for firms.
I would say those are the two areas that we see big changes happening at the moment.
What about prop? Is that something you are involved in?
We haven’t got involved in that but there is some interest there. I’m always an optimist with these sorts of things. It’s an interesting space and I think it could evolve into something that is better for clients than exists currently. It’s a bit of a wild west at the moment and that’s not our thing.