ANALYSIS: Capital requirements on non-banks are not advantageous - Marex

Speaking at the firm’s Investor Day last week after Marex’s initial public offering in April last year, the Nasdaq-listed firm’s chief executive said much of Marex’s outperformance comes from clients looking to diversify away from banks, but this is due to the expertise on offer at non-banks rather than the differing capital requirements.

“Part of our success over the last year has come from clients wanting to diversify away from banks, especially with the difficulty banks have in continuing to keep their product up to date and have the level of expertise that Marex can bring. In a world where banks are typically juniorising a lot of their coverage and losing some of the core trading talent to hedge funds, we have certainly seen more ability to win client mandates than we would have expected a year ago,” said Ian Lowitt (pictured) in opening remarks at the Marex Investor Day.

The implementation of the controversial Basel III bank capital rules stalled in the US around the presidential election last year.

The US delay affected the regulation's progress in other jurisdictions. The UK Prudential Regulation Authority in January postponed the implementation of its Basel rules by one year to January 2027, citing a lack of clarity on the US approach. The European Commission, meanwhile, is reviewing its process.

“In a world where, particularly in the US, where there is anticipated deregulation or less stringent regulation on banks that is supposedly likely to change competitive intensity, we certainly have not felt that at Marex as a non-bank. We don’t believe this will be the case because to compete in clearing is not about regulatory arbitrage – our investment grade rating is based on an S&P assessment and the S&P model which sets our regulatory ratio is essentially a bank capital model,” said Lowitt.

“So although we have less regulatory capital requirements than a bank to compete, we are competing based on our investment grade rating, which requires us to maintain very similar levels of capital to what a bank would have to do.”

Last month, the International Swaps and Derivatives Association (ISDA) said the Financial Stability Board (FSB) needs to do more quantitative analysis before finalising guidelines on non-bank leverage, responding to the FSB paper in December on non-bank financial institution (NBFI) risks.

FSB chair Klaas Knot pledged to increase focus on NBFI risks in February, while Eric Litvack, the outgoing chairman of ISDA, in December called for a tailored and flexible framework for overseeing NBFI risk.

Marex’s Lowitt argued banks “struggle with being able to develop the technology needed to stay current or to make a investment that would probably not bear fruit for three to five years”.

“The alternative to that is just to increase the amount of trading they do using a trading infrastructure that is already in place and is anxious to get more access to capital. To us, this is both strategically sensible for the banks to do and consistent with what we are seeing them actually do,” said the London-based firm’s chief executive.

“Ironically, it is actually better for our business, because banks are increasingly looking to us to be one of the vehicles into how they access market liquidity through our agency and execution services or our market-making capabilities.”

Marex reported record revenue of $1.6 billion (£1.22bn) last year, up 28% on 2023. The clearing and agency businesses, which together make up around three-quarters of revenue, rose by 25% and 28% respectively year-on-year, according to company filings.

Lowitt told investors revenue growth in 2024 outpaced peers such as BGC Group and StoneX, who rose 12% and 11% respectively. Exchanges such as Intercontinental Exchange (ICE) and CME Group improved income 16% and 10% respectively.

Marex’s Lowitt also earmarked retail demand for listed derivatives as “an attractive market opportunity”, arguing demand is rising due to “increased receptivity to this being a hedging tool globally”. Meanwhile, US exchanges and brokers are redoubling education efforts as they push to increase retail derivatives adoption outside their home market, according to FOW analysis.

FOW Data shows 202.75 billion global derivatives contracts were traded in 2024, up 53% from 132.54 billion lots in 2023.