Credit Suisse is another institution that appears to be taking its strong suit – AES – and using aspects of that business unit to build its offering elsewhere. Most obviously this can be seen in how the quant teams at AES have collaborated with their colleagues in the principal business to create a smarter pricing and risk engine that gives the bank sufficient confidence to stream liquidity in extremely large amounts.
Of course, by streaming EUR/USD in 500 million there is an element of competition between the two businesses, after all that amount sits in a sweet spot normally occupied by the algo execution teams, but it highlights how much work has been done at the bank in this area. In the middle of the first decade of this century, when banks were very worried about the negative impact of latency arbitrage strategies, Credit Suisse stood out as a bank that could handle that flow comfortably (and profit handsomely from it) thanks to its pricing technology – the sense is the bank is back at that level now.
The challenge for Credit Suisse remains Prime Trade which is badly in need of an overhaul, although it is not as important as it may be elsewhere in the industry, because the single dealer platform functionality that is most prized by users is the execution analytics – and they are already available, and being enhanced regularly, on the AES site. There, along with the issue of quoting in larger size, lies the conundrum with Credit Suisse – feedback suggests it still hasn’t quite got its messaging right on how its agency and principal FX businesses sit together and it is here, perhaps, that a revamped Prime Trade, with the AES analytics built in, would help. Generally speaking, the users most positive on Credit Suisse’s offering also preferred anonymity in markets when executing, that suggests the bank is still very much seen as an agency house, whether it likes it or not.
The bottom line is that at senior management level there has been a lack of direction at the bank over where its FX business should go. The latest restructuring effort from two years ago, however, seems to be working out so there is reason for optimism, for as good as an FX offering can be, it will not last long without the financial and resource backing of the board.
Of course, it has to be stressed that AES FX remains one of the standout services on the street – there is a lot to be said for having a business unit that thinks about nothing else than execution and how to squeeze the last percentile of performance out of it, and that is what Credit Suisse has, and does.
The last two years has seen a workstream continue at the bank to embrace cutting edge machine learning and data science techniques, across both AES and principal businesses we should reiterate and this has, in technology terms at least, brought the two businesses closer together. There has been a lot of work around NDFs where Credit Suisse, along with two or three other algo providers is firmly entrenched in the leading group – all of whom continue to develop their offerings in what could be an interesting space over the next few years.
The last year has seen the bank add NDF swaps and a clever solution for cash settled G-10 NDFs to its supported products, it has also provided access to the algo product suite for the bank’s private wealth client base, something that could be very important. As is often the case with AES, so much of the work done over the year has been under the hood in terms of improving execution performance, the bank continues to enhance its analytics package, but as noted, the feeling is the pre-trade piece is a crucial gap in need of filling.
A standout offering from Credit Suisse that we recognised last year, agency swaps, continues to impress. Clients are able to execute their original order through the bank’s algos and then roll it forward on an even or uneven basis, using an agency swap – thus extending the best execution concept further down the chain. This remains a relatively unique product in the FX world at the moment, but we suspect others will pick up on it, as they always do very good ideas. In the case of NDFs or cash-settled G10, the client can run an algo on day zero and get the benefits of a fixing algo on the preferred maturity date. Clients can also net forward exposures and auto- execute the balance.
Edge FX, the bank’s analytics package, remains very strong but the pre-trade element, as noted, is still to be completed, however Market Colour, the bank’s static analytics offering is live, as are the in-flight analytics that allow the client, who can also run multiple strategies simultaneously, to monitor execution performance.
It is difficult to pin down in product terms where Credit Suisse’s strengths lie in execution analytics because so much of its work is bespoke. That said, the post-trade piece, which allows benchmarked performance against a range of parameters, and the reversion stats amongst others, is very impressive.
Probably the best way to describe Credit Suisse’s FX business at this time – and this again goes back to the challenge of changing the perception that it is primarily an agency business – is to observe that of all the banks offering algo execution services it probably offers the best view of the market thanks to its connectivity network which includes, of course, some of those competitor banks. This makes the routing tools among the best there are and it is clear by the amount of work the bank puts into this aspect of the business, that it understands it has an edge there.
Credit Suisse in FX terms at least, remains a work in progress for us. The bank has recovered from an investment hiatus really well but inevitably full recovery takes time, which means comparative progress is slower. We are optimistic, given the work the bank is doing using machine learning especially, that the comeback will continue and that the coming years will see it creep further and further up the table. The pieces are in place and, hopefully, the investment dollars will continue to flow, as such it should be merely a matter of not if, but when.
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