“We are building up the entire technology vertical ourselves: mobile and web apps, cloud applications, trading infrastructure – the works.”
They may not like the analogy, but in one light there’s nothing the Goldex team resembles more than the cast of your classic action film; let’s say the Expendables: a motley crew of grizzled veterans, gathering for one last job. In this vision CEO Sylvia Carrasco – a bluntly-spoken, cigarette-smoking, moped-riding Basque – is the Sylvester Stallone of the enterprise and the job is planting an electronic trading bomb under the physical gold market.*
Carrasco got the itch to blow the doors off this particular market when trading gold herself. Her discovery, politely: “Physical gold is an asset class that’s still out there to disrupt.” In an interview with Computer Business Review, a blunter, more exasperated version emerges: “The trading systems in the gold space are not bad, they’re awful. They live in the ‘70s. There’s a lot of cowboys; there’s no best execution.”
Curious observers may suspect she is onto something.
Because for the founder of a startup running from modest north London offices (shared with a cargo ship broker and a marketing firm) on just £2.2 million of funding, Carrasco has harnessed a team of truly striking pedigree.
The electronics trading pioneer – who cut her teeth at Credit Suisse and MF Global before running her own advisory business – knows it: “This is not ‘two mates in their garage set up this social media whatever; our CTO has built exchanges.”
That’s Florian Miciu, a former Goldman VP who went on to lead teams designing and building equities trading platforms at both HSBC Securities and Credit Suisse. As CTO he built the technology infrastructure for stock exchange Chi-X Europe; Europe’s largest multilateral trading facility (MTF) by value traded. Goldex poached him after a stint at Deutsche Bank, where he led equities product development; a major coup for such a tiny company.
Goldex’s COO and co-founder Fernando Ripolles, meanwhile, previously led global equities products at Nomura and UBS (liquid markets origination and direct execution services respectively).
Goldex’s board? It includes Gaël de Boissard, former head of investment banking at Credit Suisse; Henry Ritchotte, Deutsche Bank’s former global COO; Nina Amin: former KPMG partner and head of Asian markets; Richard Balarkas, who created the most successful electronic trading franchise in the industry at Credit Suisse, and steered Instinet Europe as CEO and President.
What the hell is this all-star cast doing with a small gold trading app for retail investors (“starting with B2C was my biggest mistake!” admits Carrasco cheerfully) – a competitor of which, Glint, just went belly-up and was forced to call in the creditors?
Computer Business Review’s editor, Ed Targett, set off to find out.
“There’s a Lot of Cowboys”
Sylvia Carrasco started buying a little gold after shuttering her advisory company, Alion Capital Partners LLP in 2012 (where she advised institutions on electronic trading).
Her business was successful, she says, but the requirements of MIFID II meant she would have to “completely change the way I set it up”.
She was also bored, she hints (“I had spent 15 years to people talking about electronic trading; I’d heard everything 25 times already”) and after 11 years in business, decided a change was needed: “I had two options – move back to Spain and pretty much retire, or find a new, creative opportunity”.
There’s only so much fishing and hanging out with your dogs that a woman can do – however relaxing the Spanish countryside is – and so she started trading gold. She was soon fascinated by the market. As she puts it: “I’d never done it before, despite sitting next to the commodities desk at MF Global. And if you want to buy physical gold it’s all OTC. It’s incredibly opaque, it’s pretty much unregulated; providers are taking the piss and electronically, it’s in the ‘70s. It’s an asset class that’s still out there to disrupt.”
“Give me a Spread!”
Unlike the equities world, physical gold trading is dominated by an over-the-counter (OTC) market, rather than taking place on an exchange, and is a market to which change comes slowly, and seemingly reluctantly.
Despite this, gold is firmly back in fashion: whether it’s a decade of cheap money, lingering unease about the “Truman Show market”, a global order poised on the precarious brink of its own disruption as America withdraws from its post-war role as global policeman, or persistently dovish signals from central banks, trades are booming: central banks bought 374.1 tonnes in the first half of 2019 – the largest net H1 increase in global gold reserves in the World Gold Council’s 19-year quarterly data series – and 2,181.7 tonnes of physical gold overall changed hands in H1.
Yet to investors, process and price discovery leave a lot to be desired. As Carrasco puts it: “[Buyers] need to go to the individual gold providers. They have to check the price of the gold [at each provider]; the minimum quantity that they can buy; whether they can store it with them; the commission is not always very transparent and price? They just say ‘buy gold at $1250’.
“What’s that? Give me a spread!”
(n.b. The difference, in an auction-based rather than OTC market, between the price at which a trader can buy or sell an underlying asset).
She adds: “So you need to take a big calculator, calculate the price plus commission; then by the time you’ve made a decision the price has changed five times. What they do is they buy gold, and they sell it to you – at whatever price.”
For someone with an equities background, the experience was jarring. As Carrasco told Computer Business Review: “Look, I come from a world where latencies of milliseconds are unacceptable. And then you go to a website of a dealer and they will be changing prices every minute, or every five minutes.
“Sometimes they have a countdown and every five minutes, they change the price. What?! In five minutes I’ve already traded three million trades.”
Also startling for her: in the physical gold market there is no such thing as “best execution” – the legally binding tenet that says brokers must provide the most advantageous order execution for their customers.
Transparency, meanwhile, also seems to be something of a novel new idea: the London Bullion Market Association (LBMA), for example, only started publishing daily trading data for physical gold in April 2019. The idea was born to build a physical gold marketplace.
Goldex’s founder started picking up the phone…
The Birth of Goldex
Some serious talent-poaching and a few missteps later, Goldex was born.
A smartphone-based application, it lets retail investors buy and sell physical gold and has already won her team an array of awards. A marketplace for buyers and sellers, it has a range of carefully vetted, London Bullion Market Association (LBMA) bullion providers plugged in at one side, anonymously putting in their best bid, best offer; customers at the other shopping; and smart routers/algos guiding buyers to the best price.
As Carrasco puts it: “I’m building a football pitch. I’m not playing.
“I’m the referee and making sure everything is kosher.”
(Goldex charges a commission of 0.75 percent on all buys and sells, along with a monthly fee of 0.02 percent on the average value of the gold customers hold during any given month, charged in monthly arrears, with a £3.75 minimum).
“Competition Brings Price Improvement, Always”
As Carrasco explains: “When I receive an order from you saying I want to buy £100, then the routers select the best price. And if that order is £10,000, I might split the order into two, five, 20, in order to achieve best price.
“That’s how you operate in equities, in FX, in any other asset class…
What’s in it for bullion providers who must have operated happily with the status quo for years. Did they take much convincing?
“The attraction for gold providers? They have to acquire customers, they have to do their own marketing; it’s tough. This gives them access to a growing market.
“And here, they are anonymous; chances are the prices they are posting here are significantly better than the prices they give their own clients, because here they have further competition. Competition brings price improvement, always.”
“My Biggest Mistake”
So why did such a strong equities team start with an application for retail customers? It seems like a curious approach to take, given the expertise of the team.
“I made a massive mistake when I set up this company”, comes the blunt answer to that question. “To start Goldex as B2C? That was a mistake. I must have hit myself against my kitchen cabinet to make that decision.
“But I had spent my entire life doing B2B and I wanted a change. As a user of gold, I was an individual and portrayed myself as the one having a problem, so I wanted to solve that problem for me.
“But 100 percent, I should have gone B2B. Still, there’s no turning back and everything is going well; we can build on it.”
Building she is doing and where her startup gets more interesting.
“Particularly after the crypto price crash I started getting a lot of calls from big players saying ‘do you sell gold, can we connect to you?’ So we are developing a FIX API, finalising a FIX connection and have several institutions on board.”
(FIX, or the Financial Information eXchange, is a series of messaging specifications used in trade communications and underpins the global trading environment. Plugging Goldex into FIX opens up the marketplace for large institutional investors to trade off their existing interfaces, and could be a game-changer).
What About ETFs?
Yet is there really going to be an appetite for this? More sophisticated institutional investors can already access a deep pool of gold Exchange Traded Funds (ETFs); a basket of gold derivative contracts that are backed by gold, critics might argue, and the market is churning out new products.
(As the FT reports, Barclays today launched the world’s first zero-fee exchange traded precious metals product, the Barclays iPath Gold exchange traded note, structured as unsecured debt obligations issued by the bank. It will use derivatives to match the total return provided by three-month forward gold and silver prices.)
Chewing over the interview, Computer Business Review’s editor put the question (“why not just trade ETFs?”) to Goldex’s team.
The response: “Owning ETFs has limitations on redemption, and the issuer of gold ETFs usually reserves the right to settle in cash. ETFs are interesting primarily for their convenience in trading, and possibility of leveraging. They also have a significant counterparty risk (the fund itself, custodians, trustees). Physical gold is interesting primarily for hedging – it is one of the best defences for maintaining wealth (very good wealth and portfolio diversifier). It also carries significantly less risk than ETFs (no counterparty to perform against a contract).
“Institutional clients that want exposure to gold have traditionally used ETFs as they are easy to integrate in their overall trading and settlement flow processes. However the ultimate and real exposure is to buy the physical asset. In the past they would have had to do this over the phone through manual bidding.
“Goldex will be able to integrate as an electronic destination in their order management systems allowing them to easily buy and sell physical gold from a liquid and global marketplace, built around the principles of best execution. From an operational point of view we break a barrier, allowing them to buy the real metal with no hassles, placing physical gold at a level playing field with other regulated assets.”
With CTO Florian Miciu hard at work building out the stack (“We are using a mixed foundation: mobile technology, web technology, cloud-based services, and physical servers running Linux”), many will be watching closely.
A Bank Account…
Meanwhile, the company has run into some unanticipated roadblocks. Asked what the biggest challenge has been, Carrasco comes back with an unexpected answer.
She told Computer Business Review: “To most banks, gold is on the same level as drugs or prostitution. It was really hard to simply open a business bank account!
“We’ve won awards. I was on the Natwest Fintech Entrepreneur Accelerator Programme. But Natwest wouldn’t open us a bank account!
“I know my KYC (know your customer) regulations, but it was a case with the High St. banks of simply ‘computer says no’. These banks love to talk about how they’re supporting startups, ‘whoop!’ but they don’t walk the walk.
“So we went for a new bank, a challenger bank. We’ve outgrown it and are looking at another challenger bank, as well as US banks. Because for a while there we were left in a position where we were wondering where the hell investors would put their money!”
That problem now appears to be solved. And with a FIX connection due to be finalised next month, that account might just be bringing in some old fashioned fiat money to boot.
As Carrasco wraps up: “Last Tuesday I worked 18 hours non-stop. I could go home to Spain, go fishing every day. Sometimes I wonder if I’m deluded.
“But I enjoy this. I have a great time.
“It’s taken equities people to disrupt gold.”
*Yes, this is a dubious analogy. Action film franchises need more female leads. We apologise to Goldex’s CEO for the comparison; just a metaphor.