An Open Secret Confirmed: Citi Reveals FX Connectivity Cuts

Citi’s foreign exchange business has confirmed it has imposed changes to its vendor platform requirements, resulting in the 12 of 53 connections to the bank being terminated, although sources familiar with the matter tell Profit & Loss that further changes and cuts are likely in the months ahead.

As part of the new requirements, Citi says platform vendors are required to sign the FX Global Code to achieve “priority” status, however this is only one of a series of assessments made by the bank. Last year it was reported that the bank was seeking to trim the number of connections to its FX business to simplify connectivity and reduce maintenance costs, Profit & Loss subsequently learned of other banks conducting a similar exercise.

As part of the process, Citi produced a scorecard that assessed each platform against a number of criteria with the intention of providing market participants with greater transparency and clients with an objective framework for vendor platform comparisons. One senior source at a platform described the scorecard to Profit & Loss late last year as “well put together, comprehensive and fair”.

The scorecards are objective and based on a collaborative approach, with all measures outside customer service being quantitative. Each vendor was invited to review the scorecard template and provide feedback ahead of formal review and was subsequently invited to submit corrections following the review.

Alaa Saeed, global head of Citi’s FX electronic platforms and distribution, says: “Citi’s scorecard considers a number of key principles within the FX Global Code and we found notable findings in related to a number of key principles, including but not limited to, interaction with our liquidity, order management; market impact; liquidity aggregation, order routing logic; platform stability; testing of new products and coordinated releases.”

Brian McCappin, global head of Citi FX institutional sales, adds, “We hope this approach will increase standards and competition across all vendors.”

Other requirements platform vendors are assessed on include the availability of SEF & MTF venues; vendor functional offering; the brokerage rate card and Citi’s ranking and participation on the platform.

It also provides scores for each of customer service, API connectivity (by type, configurability, resilience and colocation) and execution capability. Transparency around interaction with Citi liquidity is also considered, as is platform stability as measured against Citi’s internal benchmarks and the level of investment towards client and Citi outstanding platform enhancements.

Although the overall criteria to be assessed is unlikely to change, sources familiar with the matter say that the thresholds to maintain connectivity may be raised further during 2020 with the intention of trimming connectivity further. While the first group of platforms to be disconnected are largely, Profit & Loss understands in the aggregation space, one senior platform source spoken to believes there is more to come, noting, “This is just the start, I think the industry is fed up with the constant fragmentation and is going to do something about it.”

Another factor that could accelerate such a move is growing unhappiness within banks and other liquidity providers over aggregation venues charging them brokerage to trade, something that sources say triggered Citi’s decision to study its connectivity map. This is mirrored amongst established multi-dealer platforms who are forced to adhere to regulations surrounding SEF and MTF rules, whilst aggregators – many of whom offer the same service as the multi-dealer platforms – are currently not required to register as a SEF and/or MTF.

Colin Lambert

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