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FINTECH FOCUS
HARRINGTON STARR TALK TO SOME OF FINTECH’S MOST EXCITING BUSINESSES
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JERRY LEES
Chairman, Linear
Investment
www.linearinvestment.com
Linear Investments Ltd is a prime broker and award winning
FCA incubator supporting multiple hedge fund and broker
clients, reducing setup costs and operational expenses.
What can you tell us about your business?
Linear is, in effect, an aggregator of
financial technology set up in 2010 in
response to the financial crisis and Basel
III. With many institutions seeking to
address their balance sheets and reduce
risk exposure, many smaller and midsized
funds found themselves cut off from
the larger investment banks and prime
brokers. As a boutique prime broker
Linear is able to service these funds and
further deliver economies of scale by
consolidating services such as regulatory
oversight, compliance, risk, IT, portfolio
management systems, middle and back
office, and capital raising.
The first three years were spent
building the core prime brokerage section
of Linear’s business in order to provide
funds with a full suite of front to back
services, from prime brokerage through
to execution, custody and settlement. An
additional two years were spent refining
these services. A fundamental part of
this progression and development has
been establishing partnerships with
renowned and emerging, technology
companies to drive operational efficiency.
In addition to continuous investment in
our infrastructure, and trading and risk
management systems, Linear is also
investing and working on several exciting
FinTech projects.
What lessons have you learnt from your
background?
My previous work was in alternative
execution at Credit Agricole Cheuvreux,
focusing on synthetic prime brokerage
and electronic trading. After the financial
crisis it became obvious that Basel III
would have a massive impact on banks’
credit profiles and their ability to service
hedge funds. Combining this and drawing
on a background that fully understood
the importance in the right technological
investments, Linear was born.
What areas of financial services do
you see as most ripe for disruption by
technology? And what new areas have
Linear been venturing into?
With increasing regulation in the
financial industry and the upcoming
implementation of MiFID II, on top of
AIFMD, there’s a lot of focus being paid
to operating compliantly. Technology
firms attempting to relieve the burden of
financial regulation have the potential to
capitalise on the marketspace, but only if
they’re flexible with ever increasing and
changing rules. This is compounded and
exacerbated as the very advancements
in technology can pave the way for even
greater regulation. The effects of MiFID
II can be summarised as costly for any
small, mid-sized or emerging fund. This
establishes a need to address current
practices and, as many are now realising,
outsource multiple operations.
Linear has extensively refined its risk
management and trading systems to
allow its clientele to efficiently outsource:
trading, middle and back office, and even
infrastructure. Suring up the bottom
line, eliminating infrastructure costs and
reducing overheads, there is also benefit
to be gained for funds in getting to market
quicker and more efficiently. A prime
example of this is Linear Outsourced
Trading, through which managers can
save an estimated £300k from a fully
loaded in-house trader and transfer all
fixed costs into variable ones whilst
simultaneously achieving best execution
and ensuring compliance with MiFID II.
Similarly, funds can transfer their office
costs into one simple overhead through
Linear’s Hedge Fund Hotel. Eliminating
set-up costs and increasing efficiency to
market with advanced network, data, and
IT systems, funds also take advantage of
Linear’s technological partnership with
RFA Financial Cloud and Technology
Services. Linear provides a physical home
to the hedge fund community, and is one
of the first to offer such a comprehensive
structure in Europe, enabling managers to
focus on strategy and performance.
Within the industry, addressing costs
has even led to challenges against the
iconic Bloomberg Terminal. The terminal’s
hefty price tag is becoming hard to justify,
and it’s received numerous contests
from FinTech companies offering various
similar components, from real-time
analytics to messaging. The past year has
seen the compliant messaging system,
Symphony, gain over 75,000 users,
presenting itself as a feasible and cost
effective replacement to the much loved
Instant Bloomberg. At Linear we have
internally rolled out Symphony, and we’re
now looking to explore its application and
adaptability in different areas, as well as
testing its functionality with our client
base.
With the implementation of MiFID
II and the requirement to unbundle
research, our recent partnership with
RSRCHXchange is set to disrupt the
procurement of research. As the first
online marketplace for institutional
research, the platform will allow our
hedge fund community direct access
to over 140 providers, as well as the
ability to track research procurement and
consumption in real time. In addition to
the assessment on the quality of research,
the allocation of the research budget
is subject to appropriate controls and
oversight under MiFID II. The RSRCHX
dashboard offers an automated way for
asset managers to track, rate and evaluate
firm-wide research consumption, allowing
managers to procure research in a more
efficient, transparent and auditable way.
With reports available for purchase in
both hard or soft dollar in accordance
with existing budgeting, compliance and
Linear has extensively
refined its risk
management and trading
systems to allow its
clientele to efficiently
outsource: trading,
middle and back office,
and even infrastructure.
oversight processes, the platform allows CSAs to continue in line with EC
suggestions.
Away from MiFID II, the technology on everyone’s lips at the moment is
Blockchain. Not forgetting its cryptocurrency origins, Linear is developing a
marketplace for Bitcoin that will provide arbitrage opportunities across the
numerous exchanges that currently exist. The foundation and cornerstone
behind Bitcoin could serve to disrupt multiple areas within finance with the
application of Blockchain being explored in various sectors, from corporate
governance to ledgers. To this degree Everledger serves to enhance the
process for diamond identification and transaction.
Away from Blockchain, Linear’s electronic diamond trading arm, Diamonex,
has been operating in the world’s first commodity exchange in physically
settled diamonds - the Singapore Diamond Investment Exchange. The
platform utilises proven exchange technology to create a new marketplace
for the global diamond trade, creating a true price discovery mechanism
in addition to increased liquidity, allowing diamonds to be traded as a
commodity. The technology within the platform can process over 190,000
orders per second, with the central matching engine capable of processing
in excess of 500,000 orders per second. On the one hand there’s a certain
disruption to the diamond industry but more excitingly the technology opens
up a new financial market.
It’s clear that with the thousands of FinTech companies starting up every
year that there will more than likely be a degree of disruption to financial
services. While there are many advanced technologies being developed, it
needs to be ensured that these are solving real problems or improving on the
status quo. As is the same with many trends, not everything will carry value,
but there may well be some surprises.
GLOBAL LEADERS IN FINANCIAL SERVICES AND COMMODITIES TECHNOLOGY RECRUITMENT
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