The future of prime brokerage, execution model and expansion into emerging markets: Mushegh Tovmasyan explains

The FX industry is concentrating its attention toward execution, risk management and liquidity provision at a time when the effects of the extreme movements in the market which occurred in January are still fresh in the mind of the vast majority of FX industry executives.

If last year was the year of conservative cost cutting for many brokerages whilst volumes remained low for the first nine months, this year so far is most certainly a time when the internal components of order flow are being placed under the metaphorical microscope.

The FXIC Latin America conference hosted by Shift Forex took place yesterday, and FX industry executives openly discussed how the model of execution should best be adapted, and how prime brokerage solutions and liquidity can be provided to FX firms in order that profitability is maintained, yet risk is kept to a minimum.

LeapRate spoke with Mushegh Tovmasyan, CEO of Divisa Capital, whilst he reflected on the day’s discussions at the prestigious Marquis Reforma Hotel here in Mexico City.

Mr. Tovmasyan began by explaining his company’s modus operandi: “Divisa Capital is a Financial Conduct Authority (FCA) regulated A book broker, specialising in providing liquidity to professional clients. This said, it is specifically targeted at financial institutions, such as small banks and brokers, and high frequency hedge funds.”


“There are two types of service that we concentrate on” continued Mr. Tovmasyan, “these being margin and credit trading. Credit trading appeals to larger clients that have access to top tier prime brokerage, and the relationship becomes based on credit lines. On this model, we work as a venue as well as a technology provider and perform the role of a virtual exchange.”


“For the past year, we have been working on a new product that we will be launching in the coming weeks.”

“Our main business for the last 8 years has been focusing on margin liquidity. We have been focusing on providing prime of prime services for small to medium sized financial institutions. We have voluntarily chosen to exclude ourselves from the retail space” explained Mr. Tovmasyan.

Managing narrow margins in prime brokerage

“The reason for this is that we want to specialize in specific services. With prime of prime services, the margins are extremely narrow, so in order to be competitive at this, we need to be competitive in the business model and keep the footprint within a certain range.”

“There are many larger brokerages which are able to and do offer prime of prime, but we do this exclusively therefore tailor solutions to the requirements of clients, according to liqudity requirements, location, business model” said Mr. Tovmasyan.

“Having access to the real market, and the retail space, we are best positioned to advise our clients on infrastructure, future development and target market. Ultimately we aim to build good will by providing value added services, therefore if clients grow in numbers, we get a piece of their business.”

The execution model conundrum: A Book vs B Book

Mr. Tovmasyan detailed his company’s execution model by explaining that Divisa Capital is a 100% STP broker, which is a core value in the business model.

“Reflecting on the events of the Swiss franc situation on January 15, we do not believe that the best model is 100% A book or 100% B book. For the perfect B book, there needs to be an A book component, that said not everyone has the means to run a B book in terms of financial capital, regulations, technology” he said.

“Anyone who didnt get caught there was an element of luck, and those who put it down to their software or other systems that were in place, are not being truthful. Sadly this event will kill very good companies because they trusted the wrong counterparties.”

Mr. Tovmasyan has observed a situation among banks which is critical when looking at the evolving nature of the execution model. “What has been buiding up is that banks, which are the main liquidity providers in this business, are trying to take a step away from this. It is a combination of political risk and the bank’s position as a traditional financial institution.”

“I think this will open the door to more interesting sources of liquidity. I dont believe that it is a case of simply A book or B book. This whole situation that has recently passed has opened the door to very aggressive, very well funded, very smart and futuristic liquidity providers that are quite risk averse in their model whilst being aggressive at the same time” Mr. Tovmasyan said.

He continued “A good example of this is the existing four or five high frequency liqudity providers. As CEO of Divisa, I see Divisa growing in this direction. Many might not see this, but it is happening and it will likely take its toll.”

Where to go from here?

Mr. Tovmasyan enthusiastically explained to LeapRate that his company is looking at acquisitions in certain regulatory environments, which have good human talent. He also confrimed that the company is focusing heavily on big data analysis.

“When I think about growth for Divisa Capital, I think about becoming a well known institutional venue. I see that we can improve ourselves by analysing every single moving part, and there are many in our industry, from spreads to execution, to time of day, time of week, currency pair, size, and latency” he said.

Data and information is paramount as Mushegh Tovmasyan explores exciting new markets

“There is a tremendous amount of data that is overlooked across the entire industry. Data occurs and then gets lost. We are therefore improving our infrastructure to improve every single part, with the goal of improving ourselves, client experience, ultimately reducing risk and driving profitability.”

“I talked a bit in the panels today here at the FXIC conferene in Mexico City about the similarities of Latin America to the Asian region as a potentially good emerging market. We provide liquidity in the Mexican Peso, I speak fluent Spanish, and Divisa does good business in Mexico” said Mr. Tovmasyan.

“It is a small part of our volume and revenue” he continued, “but we really do see the potential here. I see that seperate from FX, alot of the solid asset classes such as bonds and equity are years behind the rest of the world.”

“There is a strong regulator here, local banks are well capitalized and they had no trouble during the financial crises that have burdened other regions of late. Infrastructure and the human capital is here, and Divisa Capital is committed to empowering the local financial industry in Mexico to take greater steps to catch up with the rest of the developed world when it comes to FX as an asset class.”

“In many Asian economies and in the Middle East, market participants need to hedge their product as they produce a physical product which is a result of mining or minerals, so they need to hedge it because the buyer is months into the future” he noted.

Mr. Tovmasyan concluded on a high note, with clearly much enthusiasm, in asserting that “The Mexican economy is very developed. It has a huge automotive, telecommunications and manufacturing sector, but there is not enough evaluation and training to maximize what these industries have to offer on the financial markets.”

Photograph: Mushegh Tovmasyan, CEO, Divisa Capital

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