P&L Report Card

It is fair to say that for the single dealer platform in FX the comeback is complete. Just a few years ago one could hardly move for predictions of the product’s demise, although it is noticeable that few, if any, major banks stopped investing. There was a hiatus of sorts at some institutions, but 2016 saw the realisation that investment is a continuous process and 2017 saw the first fruit of those investment seeds ripen.

It has to be said, there are still one or two banks continuing to debate the need for investment in a single dealer platform, however the discussion is probably part of a wider conversation about the institution’s willingness to commit to FX full stop. At the top end of the table, investment dollars are not bountiful by any means, but they are there, and are being used.

The irony of the matter is that much of the development work underway targets an area that continues to see sluggish growth – algo execution. A byproduct of the swathe of regulation has been more responsibility thrust upon the client and along with control functionality, algos are at the epicentre of that change. It’s not so much that the banks (or the clients for that matter) want to hand off responsibility, it is more that they have little or no choice due to restrictive regulations – such is the modern era in FX markets.

So in single dealer platform terms then, the ubiquitous phrase for 2018 (there is one every year) has been “integrating into the client workflow”. The banks are effectively saying they can’t really help too much in the area of risk transfer thanks to the regulations affecting both them and the customer, so they have focused heavily on the analytics piece with the hope that the execution comes to them as well – history has shown that doesn’t always happen.

If a customer wants a view of the FX market landscape, they have more choice than ever, which means in many ways that we are back to scale. Surely, logic would have it, the bigger players would have a better window on activity and therefore their analytics would be better?

It’s actually not that easy, because – and this is mystifying to us – the vast majority of banks offering their clients analytics packages are only providing a view of the public market – internal flow is excluded. Given how several banks boast an internalisation rate of about 75%, surely this means they are offering their clients a quarter of the market at most? After all, if they are paying for the same market data, what is the difference between the number one and number 20 FX banks’ offerings beyond the quality of their quants and – importantly – how the data is presented?

In the multi-dealer FX platform world, we noted in the 2018 Crystal Ball (Profit & Loss Q1 issue) that firms are competing on data and while we have our doubts that this is the best way forward for the industry, it does beg the question, why are the banks not competing on data? We hear so much about “differentiators”, it is strange to see institutions with a clear advantage over others not exploiting it.

One customer told us that their banks had told them they wanted to show the analytics most related to the market in which the client would execute – i.e., via an agency model – and that makes sense, but what about the hundreds, possibly thousands of clients who like to interact with the internal pools? The cynic might suggest the internal data is left out to help internalisation engines improve the execution quality, especially in the era of third-party TCA.

Looking across the participants, the two outstanding platforms are, for the second year running, Citi’s Velocity and JP Morgan’s eXecute, however as already noted, UBS has done a lot of work over the past year or two on its FX offering and, interesting to note, two perennial giants in the platform space are making a comeback.

It seems strange to describe Deutsche Bank in FX as making a comeback in any way, but the impression from the past few years has been one of withdrawal to a level with which the bank was comfortable. The client tail, as was the case with so many others, was trimmed, and the FX business was re-focused on key areas.

Part of this process seemed to go hand-inhand with reduced investment in Autobahn, but that has come to an end as the bank is rolling out new products and services. Significantly, Deutsche has added algo execution strategies for clients to Autobahn and rolled out an analytics suite alongside it – strangely enough this is only the second time in the past decade or so that Deutsche has shown us anything algo – historically it has relied upon its flow house business model and provided risk transfer above all else.

The changing market landscape has seen the bank nuance that philosophy, for while it would no doubt prefer to see client business on a principal basis only, it recognises that an increasing number of clients cannot trade in this fashion even if they wanted to.

The good news for Deutsche is that Autobahn as a concept and as a framework, is very scalable and has stood the test of time well. Whilst we accept the old adage “if it ain’t broke, don’t fix it”, even the best platforms need a little TLC on a regular basis! The popularity of Autobahn and the fact that Deutsche remains highly competitive with those clients it sees as key to its FX business, means that there has been little damage done. That said, we do feel that the renewed investment came just in time, for the aforementioned regulatory landscape has meant clients need to interact with their banks in a different fashion and Autobahn needed the important, but relatively small, tweaks that have taken place over the past year or so.

It has to be stressed that in terms of product roll out, Barclays is not as advanced in its renewal process as Deutsche, but significantly there is an air of optimism at the bank that can only come from renewed investment. BARX is another platform that we warned over the past two years was in need of renewed investment and Barclays has started to deliver.

Following the JP Morgan route, Barclays has focused first and foremost on its pricing and risk management capabilities, that has led it, anecdotally, back to the top end of the table on several multi-dealer platforms and aggregation engines. That work now seemingly complete, the bank is starting to look at its product set and has started with a new algo execution strategy for clients that keys more on liquidity levels in markets than price. Alongside this LWAP strategy, the bank has also joined the throng of institutions providing control functionality to clients, as pioneered by Citi’s Command Centre in FX and the same bank’s Click in FX prime brokerage some years ago.

As was the case with Deutsche, Barclays can thank the popularity of the original BARX design for being in a position to stage a comeback, for it remains popular with clients and has helped the bank retain a great proportion of them. Again though, as with Autobahn, this doesn’t mean that BARX will not benefit from renewed investment – it will, and again the regulatory demands will be the driver of much of it.

Elsewhere, Goldman Sachs seems content with its offering on Marquee and has focused on re-skinning the platform and enhancing the tech stack on which it is built. There is little wrong with this because Marquee has been developed really well over the years and is well-designed, however, the bank is in the throes of rebuilding its algo offering. There is a sense that 2018 could be a big year for Goldman in this space as it seeks to enhance its already impressive execution and analytics technology.

BNP Paribas is another institution that continues to impress and Cortex remains a favourite of the P&L team for its broad range of functionality. We have noted before that Centric, the bank’s broader platform, is very similar in ethos to Autobahn with its app model and of all the banks, apart from perhaps UBS, BNP Paribas best represents the efforts of banks to leverage new technologies and techniques in servicing their clients.

Probably the most urgent requirement for BNP looking ahead will be transitioning much of the excellent functionality on Cortex, into the mobile environment – although it has to be said it is not alone in needing to roll out products to tap into that growing market.

If we are being honest, two years ago we were a little concerned about how Morgan Stanley’s FX business would evolve – it was losing no little FX expertise from its ranks at the same time as it seemed to be embracing the idea that FX would evolve into an equities model. As is well known, we didn’t agree this was the direction the market was taking and the sense is the firm has realised that as well, because there seems to be more focus on FX-specific products and functionality. Without doubt, some equities techniques and functionality can cross over, but not all, and Morgan Stanley seems to have realised that.

Matrix remains an excellent looking platform and the analytics package is outstanding. Fusion Edge, the execution piece, is a smart, flexible, offering that allows clients to control how their orders are executed. The bank’s QSI team is wellrespected around the industry – rightly so given its long history of innovation – and Fusion is the outlet for a lot of that work, it is a great example of how to bring together great analytics and excellent execution tools.

For the rest of the field, their ability to compete in FX comes down to one, or both, of investment or innovation. There is a welcome return this year to the winners’ circle for Natwest Markets, an institution that has clearly had many external issues, but had (has) the right platform in place. Agile has always been scalable and while at the moment the bank is mainly focused on being innovative in its approach to FX prime brokerage, as we shall discuss later, it is well-positioned for an open sourced, shared, future.

Bank of America Merrill Lynch has the franchise to compete in most areas – and indeed does – however the bank has been at something of a standstill when it comes to developing its single dealer platform thanks mainly to the onerous, but vital work, of building the right pricing and risk management engines for the modern market. The sense from BAML is that investment is still uncertain when it comes to the FX platform, it has what it terms an “enhanced spot window” in production, but nothing else appears to be in the pipeline. Without wishing to sound too dramatic, there is a sense BAML is at a crossroads regarding its FX business.

We were unable to get a good look at Credit Suisse’s offering this year due to logistical difficulties, however our understanding is that the bank has spent a lot of time meeting its MiFID II obligations, especially on the agency side of the business in the excellent AES, and as such development on PrimeTrade, the bank’s single dealer platform, has been on the back burner. The bank does have a heavy workload planned for the next year in terms of product development and enhancement, however, so will no doubt, be back firing on all cylinders for the 2019 awards.

Finally, to another bank that has long been viewed as a sleeping giant in e-FX – HSBC. This is not the first (nor we suspect the last) time we have looked at HSBC and seen nothing but potential, but the bank has yet to really lift itself to the top end of the e-FX table.

Evolve is a good platform that does the basics well – and this is something of vital importance to HSBC’s customers around the world of course – but it doesn’t have that cutting edge feel to it as yet. Where the bank has made great strides is in its internal customer management technology, and in an institution that probably has in excess of 50 legacy systems in just its FX business, this is no small feat. It has also enhanced a lot of the processing functionality so vital to customers.

Looking ahead for HSBC the priority would seem to be deciding and building on one tech stack to which it can migrate the myriad of internal platforms. The bank’s key strength in FX – its global footprint – actually works against it when it comes to a single dealer platform because many of those geographies have gone their own way and need to be brought back into line.

That is not to say it can’t or won’t happen, more that however it is done it will take a long time. HSBC remains a “watch this space” institution when it comes to the single dealer platform demanded by so many clients.

As noted at the top of this article, however, the two current powerhouses in the single dealer world are Velocity and eXecute and for the second year in a row, the debate over a winner was long, twisted and often confusing. Both are previous winners of this award and both are worthy and come with a long list of users willing to back them – JP Morgan in particular has come an extremely long way in a relatively short space of time. 

The functionality across both platforms is broadly similar in terms of product offering and both represent the full solution for any client wishing to trade FX. JPM has made great strides in its algo offering this year – that was a key focus, along with commodities for 2017 – and is in the process of re-tooling eXecute to HTML5.

Given how Profit & Loss refuses to sit on the fence, a winner had to be named however, and in the end it came down to a choice. In our honest opinion, if a client is looking for good control functionality, great analytics and content, then Velocity should be the destination of choice.

If, however, it is more important to achieve best execution, then our view – and much of our feedback from users, indicates that eXecute should be your destination of choice.

This won’t stay that way, of course, and for certain clients it may not be the case now, for we are told that Citi is in the midst of enhancing its pricing and risk capabilities and as eXecute transitions to HTML5 its control and content will become much richer. For 2018, however, you pays your money and you takes your choice as they say – and a straw consensus suggests Citi for content, JP Morgan for execution.

Winner – Citi

Whilst the managing editor of this publication will take execution over content any day (you can’t take the trader out of the trading room!) it has to be acknowledged that the current environment in FX markets is dominated by three ‘Cs’ – conduct, control and compliance. And this is why this year’s Best FX Platform award goes to Citi.

As well as being an easy to use and visually rich experience, Velocity also shows the benefit of scalability and flexibility – as well as continued investment – for as the world has changed, so too has the platform.

Before going into the differentiators for this year, it is worth noting how the options cube remains the best example of maximising screen real estate; how the TCA dashboard has been enhanced and algo orders easier to launch from the dealing window. Pulse, the corporate-facing element of the platform, has a staggering breadth and depth, and the level of detail in the dealing tile and order functionality remains top quality.

What is impressive with Velocity is how it serves the various client segments so well, although it has to be said that it is only over the last year or so that hedge funds have really bought into the platform’s value proposition.

It is in the hedge fund story that the differentiators come to the fore, however, for by focusing on the three ‘Cs’, it has allowed this client segment to meet several of the challenges of the new world. It is two years since Citi first rolled out Command Centre and whoever came up with the idea and drove the project forward should be given a medal because it has given the bank a serious lead.

Given how imitation is the sincerest form of flattery, this lead is highlighted by the number of other institutions rolling out their own version. However, with first mover advantage and a two year head start, Citi has been able to move further ahead. The past year has seen the bank add a new client activity report that breaks down activity across different channels and products, it has also added a core feature of Velocity (that in turn came from Click), the ability to drill down from the high level information.

Command Centre has put even more control of their operations into the hands of the client, meaning greater comfort levels at the clients’ end. It has also, indirectly, led to a boost for mobile trading as this was one area that epitomised the reluctance of a group of customers to engage due to control issues, or the potential lack thereof. These fears, and others, have been dealt with by Command Centre and while its competitors are quickly building their own products, Citi is building a comprehensive suite of reporting tools to support the top level permissioning framework.

The bank has also improved its notification and alerts functionality – this helps make Command Centre a more responsive tool, as well as makes the broader, and more historic, issues around order management, easier to handle. It is also available on the mobile app – a real bonus for desk managers or oversight functions on the move.

Another addition to the platform indicates Citi’s response to the new environment, recognising as it does, one of the bigger issues in FX over the last year – the rollout of the full Global Code of Conduct. We have heard much about adherence to the Code and that remains an ongoing process with buy side engagement a key element of the work. The Global FX Committee wants to broaden engagement with the industry beyond the banks and major players and Citi is using Velocity to help.

Citi has incorporated the Code into Citi Velocity University, its information resource. Users can search for aspects of the Code or access the entire work – a material example of an institution helping to spread the word.

A final differentiator for Velocity this year is Citi Gateway, a product in Pulse, the corporate platform. Gateway allows a client to build a rules-based automated framework for their business – it is a “buildyour-own” service that allows them to shape the platform to show them exactly what they want. This “e-commerce” a la carte concept is obviously similar to the app store framework but really helps the bank meet the needs of a tremendously broad client franchise with almost as many different demands.

Gateway is a very flexible workflow solution that allows clients to build their own connectivity network and support that with the appropriate functionality and reporting (not to mention controls!).

Finally, when discussing Velocity, we move to content. The perennially popular FXWire remains a strength of the bank’s service and Velocity continues to offer indepth analysis, using drill downs and wellfiltered content.

Last year we hinted at a new approach in our write up for these awards, when it comes to research and in 2017 Citi rolled out a small, but to us, valuable enhancement. The landing page on Velocity’s content screen now offers a mindmap, which allows users to instantly recognise what have been the big issues, or movers overnight.

We have long been fans of visualisation and this is, to us, next generation content delivery. The more an issue has been written about, traded, or even clicked on, the larger the “bubble”. Users can click on the bubble to filter stories further, they can also move them around to reflect what matters most to them, and as they are moved, related topics are brought to the fore.

It is not a huge change in delivery, but like so much about Velocity, we think it could make a small but significant impact on users’ day-to-day activities thanks to less time spent searching for information.

With Infinity Cable, Velocity’s order staging functionality gathering increased user numbers, improved TCA and order management functionality, not to mention the longstanding excellence of its prime brokerage platform, the future would appear to be bright for Citi in FX – and it is largely thanks to a superb platform that not only meets the needs of clients, but also predicts them.

Galen Stops

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