John Streich is president and chief executive officer Penson GHCO, a post he was hired to in January. He was previously a member of the firm’s senior management team and built the trading firms First Capitol Ag and Efutures.com. Jim Kharouf, editor-in-chief of JLN, spoke with him about his start, his plans for Penson GHCO and where the FCM business is heading.
Q: How did you get started in the business?
A: I started in 1983 as a runner at the Chicago Board of Trade. From there I went on to broker upstairs. And in 1989, I moved out of Chicago and started a small introducing brokerage in Wisconsin called First Capitol Ag. The intent was to take the markets to the farmers and help them market their grain through hedging. That turned into a successful business with a mechanical [trading] plan with a 13 year track record. It continues to be a very vibrant business.
From there we secured the name Efutures.com and entered the online brokerage business on the spec side in 1997. We’ve been blessed with a great team and customer growth eventually becoming a non-clearing FCM and finally acquired by Penson in 2007.
Q: What led you to take on the CEO post at Penson GHCO?
A: I wasn’t looking for this job, but they came to me. Penson has very good, ethical people, the kind of people I’d like to do business with if I were shopping for a broker. I saw a lot of potential with the technology and a nice product mix. We’re not a behemoth that moves very slowly, and we’re not so small that we are without resources. We’re in a nice middle market area, flexible and nimble that we can take care of the client.
Q: What is your management philosophy?
A: You should have fun while building the company. The way you do that is to take care of your team members. If you don’t take care of them first, you can’t deliver customer service. You have to show through your team members how you take care of them and that transfers to the client. So it’s service and integrity, and allowing people to enjoy their time and have fun while we’re doing it.
Q: You have about six months under your belt there, what have your priorities been?
A: Our number one priority is our clients. What I’ve tried to do is grow the business and bring in the right management team, and add value with our technology.
In fact, we’re up over $100 million in segregated funds this year. We’ve gone from about $400 million on January 1, 2010 to over $500 million today. That shows some of the growth we’ve had.
Q: How have you built your management team?
A: There are five key people with our executive team here. Denise Goldberg is a terrific CFO and Steve Leone is our head of back-office operations. Through conventional hiring methods we’ve most recently added Tammy Botsford as deputy general counsel who was with FIA ,and before that was at Morgan Stanley. The other new member is Karl Fruecht, who is vice president of business development and previously was at HSBC. He has 15 years in the futures business.
From previous relationships we’ve added our CIO, Ann Mulholland, who was formerly with Cargill Investor Services and at JP Morgan. We’re not just a clearing firm, but we also provide technology solutions. It’s a great team.
Q: You’ve mentioned your technology. Everyone says they have great technology. What makes yours so good?
A: It’s rare among firms that they have their own API, and we have developers on staff. We allow black boxes, and have very tight risk controls. We haven’t had any problems there, and we do check the risk on the black boxes with high-frequency traders. But we allow firms to write into our own APIs for black box, high-frequency trading and direct market access. That’s not something you typically find at other firms our size, or even some of the larger firms.
We also have our own proprietary risk systems here and we offer those out. We have a global risk product for firms to manage their risk across market segments, out to four standard deviations. And we do a variety of hosting solutions for firms in the business. And we’re developing our own in-house technology for different portals, which we’ll share in the not-too-distant future.
Q: This is a tough market for FCMs. How can FCMs navigate this low-interest-rate environment?
A: Some try to grow top-line revenue and then it’s a battle to the bottom. Others try to attack expenses. Ours is a two-fold approach. We’ve cut costs in operational areas and have increased in other more productive areas, such as sales. And we’re looking to bring in new customers.
It is a tough environment out there. It is challenging, I knew that coming in. And if I didn’t see the potential and didn’t think there was great potential, I wouldn’t have taken this on. We’re doing something right because we have improved the bottom line at a time when money is leaving the market. Commodities is one of the first places people pull their money. That’s a testament to the team here.
Q: Who is bringing that extra business to Penson GHCO?
A: We believe the middle-tier market is probably one of the least served. Professionals are well-served, and competition is fierce for retail customers. But the middle-tier market is where we believe that the growth opportunity is. I believe everyone should have professionally managed funds as part of their portfolio. We’re trying to grow that market. We don’t have a lot of CTAs on our roster but we have brought in some IBs who do that kind of business. That’s a nice offering to have.
Q: And how should this industry grow the pie?
A: Through education and positive media coverage. Futures markets are a necessary and key component of free-market price discovery,and they will always be around as long as capitalism is alive. However, in this economic climate I see the pie getting smaller and everyone wants a bigger slice.
Q: Should the futures industry be doing more collectively to grow the overall business?
A: Yes, we should, but everyone is concerned with their own bottom line. Like many other industries, I think we’re headed for more consolidation. I don’t know if big firms are going to get any bigger but they may get smaller. I think we’re in a difficult spot. Now we have more regulations. Things are coming up the pipeline in a shrinking market. They are going to get tougher before they get better.
Q: One of the things the options industry has done really well is make a consistent and industry-wide effort to educate not only retail traders but also bring institutional players into that marketplace. I just don’t see it on an industry-wide basis in the futures industry.
A: We do have a great opportunity. We’ve basically depended on the markets and market news to publicize these markets. That also provides an opportunity to firms who are willing to come up with new creative ideas. I agree we’re not as up to speed as the options industry. But on the other hand, I do believe that leaves some opportunities for firms such as ours who are looking at creative ways to develop products and services over the long term that is going to work. Otherwise, you’re always in the mode of the next new thing.
In 2008, everyone wanted non-correlated markets because the equity markets were way down. When the equity markets are way up, nobody wants to hear about it. People really do buy performance even if they say they really don’t. And right now is the time when they really should be taking a look at futures because you’re going to have some moves like you’ve had in 2008. Then they jump in at the end and get burned for a few years and get out when they should be getting back in. So they get in that vicious cycle, always on the back end of the curve.