HoT: Could you please tell us a little about AFS?
HS: AFS Group (www.afsgroup.nl) is an independent financial service provider specialising in transaction advice, voice brokering, execution services and transaction monitoring, and reporting, in a broad range of financial instruments such as: Cash-Equity, Renewable Energy, Equity Derivatives, Fixed Income, Foreign Exchange, Interest Rates and Exotic products. AFS also offers Capital Market solutions such as Project Finance and Debt Private Placements mediation. As an extra service we offer a variety of niche aggregated market information. DMA and voice are serviced within a MIFID II compliant environment.
AFS has 80 FTE in offices in Amsterdam, Frankfurt, London and Zürich and offers its services to approx. 700 end-clients like: Asset managers, Corporates clients, Hedge funds (private) banks, Liquidity providers, institutions and (semi) Government bodies. AFS holds all necessary licenses and is regulated by the Dutch Financial Authority (AFM), the Dutch Central Bank (DNB), the FINMA, the FSA in the UK and the BAFIN in Germany. AFS is among others a member of Euronext, Eurex, and Nasdaq OMX.
HoT: How has your career path brought you to your current position with AFS?
RM: When I started my career almost 20 years ago, Amsterdam had the most active ‘open outcry Options trading floor’ in Europe. Many International investors traded Options in Amsterdam to get volatility exposure. Since then open outcry migrated rapidly to phone voice broking and screen trading. Although much of the volume trades are on screens nowadays, personal networks seem to be more important than ever, so the Voice Broking desks at AFS are still the backbone of the company. Our existing network of Trading relations helps us greatly in terms of market insight and exploring real Liquidity behind the screen quotes, which are often very small and not tradable in the size that our Clients require. The screens are a shallow indication but the Voice Broking Network determines were the real Liquidity is. Our Derivatives knowledge and Relations Network still serve our Clients every day.
HoT: How has the Brexit vote impacted AFS until now ?
HS: AFS has offices in Amsterdam, Zurich, Frankfurt and London so after the Swiss Central Bank dropped the Euro in 2015 AFS had already evaluated and managed all currency and operational risks. Brexit was just more of the same. Commercially though Brexit looks like an opportunity as three out of four AFS offices are outside the UK. AFS Amsterdam already welcomed the first new customers that want an additional execution channel outside London to make sure all European business can continue as usual in case any political or fiscal changes should quickly shift any trading volumes from the UK to Europe.
HoT: How does AFS work with the MiFID Compliant Execution Process, how does AFS deal with this process without moving markets with larger orders?
HS: After MIFID II was announced, AFS has taken steps to consult with our clients the possible impact of these new regulations. The main conclusion was that our role as an execution channel will become more of a liquidity service provider for our clients. Based on this conclusions we’ve developed a hybrid system which supports our brokers and clients in the execution process for handling and executing wholesale derivatives requests. All necessary steps in the order process such as timestamps, relevant market-data and prices are stored away in a database. These necessary steps are a result of the Best-Execution policy which will be a part of the Broker agreement between AFS and our Clients. This data will be be made accessible for the clients on an on-demand basis in a secure environment.
The system takes records of the Pre-Trade Info, The Deal Process and the Post-Trade obligations. In all of these stages, the system is hybrid and not fully automated. The system facilitates the broker in the deal process. Regulatory demands have a negative impact on the time-to-market demand from our clients so the system will make it possible to ensure the time-to-market demands from our clients are fully met. For larger orders, AFS supplies liquidity to its clients by prices provided by counterparties based on historic behaviour and recent demands. AFS is able to combine historic price-behaviour and broker knowledge to provide the Client with the best price possible given current market conditions.
So a big part of the process is automated to improve speed and meet all MiFID II requirements, as speed makes the chances of front running and misuse of markets moving information significantly smaller. But in the end it’s still experienced and licenced humans that make sure delicate orders are handled carefully in the fastest way at prices that best reflect the current market values.
HoT: Buy-side firms are making greater use of Independent Liquidity Providers in Options and Futures, could you tell us more about how this works for best price only instead of own book trading?
RM: For example if a Client needs to buy a bigger clip of call options, or a more complex combination of options with multiple legs, he will call a bank and ask a price. The Sales Executive at this bank will ask his bank trader this price and the trader will price this level in a way the Client is serviced, but the Bank also makes money on the trade. If that Client calls AFS we will check various Traders for the price, push them for their real best price and show the best price to the Client. Traders will only show a price when they really care and not because they have to. Also more Traders involved, mathematically leads to sharper prices and better liquidity.
Now that MiFID II puts more pressure on best order execution, calling one or two banks and trading against their own book is no longer sufficient. A bank pushes the best execution obligation back to the Client as the Bank only shows its own price and this might not reflect the best price in the market. This is simply because the bank is not able, or willing to take more risk. This means a client needs to call at least three to five banks himself, or a client just adds AFS to the call list.
AFS fully meets best order execution standards as AFS systems ensure enough Counterparties are consulted and prices are benchmarked vs screen prices. So by adding AFS to the order execution process Clients are immediately MiFID Proof, and at the same time their performance improves as AFS wins over 50% of all price competitions against Clients’ three favourite banks.
MiFID puts more pressure on Clients to search for best pricing and AFS`s only goal is to find the best prices.
HoT: Regulations also force more Buy-Side users to trade listed contracts instead of OTC, What is AFS’ policy on new listed products and OTC Derivatives ?
RM: Our continued presence in the OTC market for exotic equity derivatives and extensive network of Listed Market participants leaves us well placed to embrace new products being brought on to exchanges, such as the SX5E to USD Futures recently launched. Whilst OTC is still very much in demand, our presence in both listed and OTC markets enables us to offer tailor made solutions to our clients.
HoT: AFS’ DMA Solution is directed towards smaller Asset Managers; what are the benefits the DMA Solution offers?
RM: Smaller Asset Managers became very aware of their cost structures in the last five years. Now that volumes are lower many, AMs don`t see the need to keep a full execution infrastructure open as there may be periods when they will only send a limited number of orders through their own dedicated telecom lines, memberships, API`s etc. By connecting to the AFS DMA solution customers only pay a low and fixed amount per order, so during quieter times costs are zero and in very active times costs are always clear and easy to allocate. In the meantime AFS covers the full MiFID Best Execution regulations spectrum so the client doesn’t need to worry about not being fully compliant with newest rules and regulations.
HoT: A number of companies contact AFS directly regarding the green energy and small-cap finance solutions that you offer, could you tell us more about these solutions?
HS: As an independent financial intermediary, AFS Group has in-depth contact with an extensive number of financial institutions in Europe. An ever increasing number are enquiring as to allocate potential investment opportunities in renewable projects and renewable oriented companies. The intense daily contact allows us to realize sustainable loans and other financing constructions quickly and for profitable conditions by reaching a large number in a short amount of time, enabling us to provide a good alternative for regular bank financing. Depending on client wishes, our services can vary from financial mediation of a new project or organisation, refinancing of existing loans up to structuring alternative debt solutions on the capital market.
HoT: What does the future hold for AFS? What can you expect from Market Liquidity on Bonds in the next ten years?
HS: In the Fixed Income market AFS believes it is well positioned to handle and benefit from the changes that are happening now and in the near future.
Many market makers, mainly due to new regulations and increased capital requirements, are not capable of holding large positions on their books. Both the sales desk and balance sheets of many banks are shrinking. Consequently, sales automatically concentrate their services on their biggest customers, and the fact that they can hold smaller positions means they can provide less liquidity.
There are a lot of participants in the market who will need neutral information who are looking for liquidity and regulation compliant order execution. AFS, being an independent broker with a large and diverse European client base, is able to provide these services.
AFS acts like a market place where all interests, prices and orders of our individual customers are brought together. Especially now with the low liquidity during the QE program our customers appreciate that we work for them discretely and without moving the market against their interest. Although we expect that the QE program will last for a longer period of time, market liquidity will improve once QE is tapered and finally stopped.