P&L Report Card

The mood amongst the FX businesses on the street can be easily summed up by one comment from a senior manager that was repeated in various forms, several times over, during the demonstration process for these awards – “the bank sees the value in the FX franchise because it is less capital intensive and that means investment”.

This is, as we noted at the top of this feature, good news for the banks and their e-FX business units, however it also means increased competition – which is good news for the client. Actually measuring the success of the increased focus on FX will be difficult of course, although inevitably the less subtle in the banking ranks will look at volume of business alone.

That aside, the focus of development has pretty much been around the execution process. After years of debate, opinion finally appears to have fallen to the side on which this magazine has stood – pre-trade TCA does add serious value and is a vital part of the product set. Inevitably of course this means that the banks rush out their own “unique” products and while it cannot be contested that the data provided is proprietary to the individual bank, the fact that most are offering aggregated ECN data alone does kind of homogenise it.

Part of the reason for the surge in pretrade TCA is the ability to help clients with their decision making process, although anecdotally the biggest motivation for clients taking it up appears to lie in how they can PDF a screenshot and then provide it to internal audit three months later when questioned about the trade! Although that is no doubt a negative driver of the product, there are others who genuinely find it valuable, not least in establishing the timing for an execution.

We will go into the data and analytics aspect of the platforms more in the Best Execution Report Card, but there is little doubt this is where the competition has been, and will be in the year ahead. Another area of increased competition is FX options, but here we are really talking about banks filling in product gaps to become competitive with the leaders – the problem with FX options is if you get too funky with the design of the GUI, you lose a whole generation(s) of traders used to pricing their structures and trades in a certain way. It has been a long time since something genuinely new emerged in the FX options space and it is likely to be some time yet before anything does.

So the increased competition in e-FX is not so much about new products, it is about enhanced execution experiences and remaining relevant – and for some, regaining a position of note.

Looking across the banks’ offerings, what is notable is not how the top of the table remains a very tight competition between Citi and JP Morgan, but how a larger group of players are congregating behind them. Goldman Sachs has been garnering rave reviews for Marquee and its FX experience for the past few years and has generally been understood to be the next challenger to its US peers, however that is changing.

Put simply, there seems to be a comeback of sorts from the Europeans, a development that many – including people in the US giants see as a positive for the industry as a whole. These awards have charted the decline – if indeed that is what it has been – of two previous giants of the e-FX space in Barclays and Deutsche Bank, as the investment in BARX and Autobahn, respectively, seemed to drop off while others, most notably the US banks, increased theirs. No doubt both platforms have remained popular with their respective client bases, but the sense over the past five years has been one of under-investment while the banks’ boards mulled their future.

This has definitively changed. Last year we highlighted Barclays as our One to Watch and it is good to see our faith repaid. BARX as a platform is still in the process of being enhanced. Luckily for the bank it remains a popular experience for its loyal client base, but in terms of its pricing infrastructure, the bank has made great strides. This has allowed it to unveil a new algo that leverages this infrastructure – something that is the highlight of the new BARX offering.

Last year we described an air of optimism within Barclays’ FX business, roll forward 12 months and that mood can best be described as one of confidence.

The advances at Deutsche are probably even more impressive as along with its always strong pricing and risk handling capabilities (that never changed even in the years of apparent under-investment) it has now rolled out some seriously impressive analytics around the trade. Again, new algos are part of the package – an area the bank rarely delved into publicly before – but the general sense is that the “new” Deutsche FX business is trying to innovate in a way that it may not have done so before.

In reality, Deutsche’s market presence hardly changed beyond what seemed the obligatory cutting of the client tail witnessed at just about every ban. What was needed – and what is delivered by Autobahn now – is a distribution platform to match it. The next generation Autobahn looks good and delivers market colour in a thoughtful, imaginative manner – and as it develops further it could very easily see Deutsche cement its place in the upper echelons of the FX industry.

If there is one cloud on the Deutsche horizon it would be how well the FX business and its development roadmap would survive if there were a merger with another bank and so, while it is good to say that the bank is properly back in the e-FX game, there is still a small question mark that will only be solved with time.

Elsewhere, the landscape has not changed a great deal. Citi and JP Morgan continue to compete pretty much at individual product level and both have rolled out quick execution functionality inspired by Morgan Stanley’s virtual and physical keyboards of a few years ago and both have added to the range of options products supported.

Citi is slightly ahead of JP Morgan in the pivot to HTML5 and that gives Velocity a slightly cleaner look, but where eXecute is in HTML5 it looks terrific. As was the case last year, we find the execution and dealing experience on eXecute superior, but the content delivery on Velocity the better. This is a competition that will run and run, and that can only be good for clients and, we would humbly suggest, the banks themselves.

Goldman Sachs remains in the midst of a re-skinning of Marquee and previews of the new platform hint at an even better experience for the GUI trader than that on the already excellent first iteration. Cleaner graphics (can we stop mentioning HTML5 now?) makes the trading experience richer and easier on the eye and, along with the improved and revamped algo offering this means Marquee 2.0 will be a significant player in the years to come. Commodities and the new algo execution product set are already on Marquee 2.0, which will also feature a Launchpad function to allow clients to access all things Marquee from a single window.

If there is one drawback with Marquee it is that the crossover from content to trading and vice versa remains onerous – indeed that is a challenge that several banks face, although Citi and UBS in particular have overcome it.

Morgan Stanley’s Matrix remains impressive, although we still find the dealing screen a little “busy” thanks to the granular pricing (this can be adjusted by the user), but as always the real strength of the firm’s effort lies in the work of its QSI team, which this year has rolled out QSI React, a new TCA product.

Elsewhere, in what may be an important move that increases choice for the client, Morgan Stanley has rolled out its mobile offering, which offers a similar experience to Matrix but importantly offers the bank’s popular Fusion Edge execution suite as well as a range of order types, including price and event alerts. The firm has also enhanced its FX options offering, something that was a gap in its armoury and users can now have options pricing alongside their Fusion pricing.

BNP Paribas’ Cortex remains excellent and the bank’s algo execution business goes from strength to strength and shows the benefits of innovative thinking allied to a commitment to the business at higher levels of the company. The bank’s Centric platform, aimed at its corporate client base, also remains very functional and easy to use, however at some stage we suspect that clients might like to see the two drawn even closer together. For now, though, BNP Paribas remains a “go-to” provider of execution services.

Another bank that has focused on execution is, of course, Credit Suisse with its AES business and although the bank has continued to support its Prime Trade platform the feeling again is that it has focused its investment resources on pricing and execution. In part this was necessary because the bank lost ground over the last two years thanks to what appeared to be under-investment and then an abundance of work around MiFID II, but it also means that it is still playing catch up in its area of speciality. Luckily for the bank, AES has proved a sticky brand and that has bought it the time to play catch up.

Credit Suisse has also gone back to the future in many ways because more than 10 years ago when high frequency firms were creating so much havoc in FX markets after their entry in 2005, it, along with Royal Bank of Scotland, were very much in the box seat in terms of their ability to handle the flow – thanks to their superior pricing capabilities. Last year, Credit Suisse threw resources, including machine learning techniques of course, at its pricing infrastructure and the result is what the bank claims to be an improved and more robust price stream to clients. We are, as noted previously, unable to judge the quality of pricing – it is literally a millisecond-to-millisecond thing after all – but what we can say is the bank is streaming in extremely large amounts on Prime Trade (up to EUR 400 million in EUR/USD) and to do that you have to have confidence in your technology!

We have already discussed UBS’ capabilities in the Best Multi-Asset Class Platform Award, which leaves us with one other major player in e-FX and one that appears, finally, to be making a serious move.

Last year saw NatWest Markets return to our winners’ circle for the first time in a few years and over the past year the bank has worked to enhance its FX offering across the whole execution workcycle. Where NatWest remains strong is in its FX prime brokerage business and segregated execution desk. The latter is hard to analyse in terms of these awards given that execution is a very subjective issue, but the fact that we heard good things from enthusiastic clients tells its own story.

The order management tools on offer from NatWest Markets remain excellent, including the Gamma hedger, one of the more popular products of the editorial team over the years and one that is achieving that highest form of flattery – imitation – in a growing number of institutions. The strongest card in the bank’s hand, however, is the concept of Agile Markets, which was designed for the open source era. As banks become more open to collaboration with fintechs and other third party providers, access to a single-dealer platform could be a deal clincher and the concept of Agile fits this perfectly.

Finally, to HSBC; the good news for the bank is that this is the second year that people have told us it is making strides, the bad news is, inevitably in such a huge organisation with a global footprint it means progress is slow. The past year has seen the bank make a good name for itself in the algo execution space, although it remains a service that runs in the background rather on Evolve, the SDP, and, most publicly, it launched a blockchain-based service in its post-trade business.

Aside from those two key areas of growth, HSBC has also taken another small but important step on the road to delivering a world-class SDP. Much as Deutsche has Pandora, a search engine for want of a better phrase for Autobahn, so too does HSBC have the same facility. This means clients can navigate the platform without using too much screen real estate – the challenge for the bank now is to build out the range of services available to clients.

A big help is available in the timing of the development cycle – HSBC is building exclusively on HTML5 for Evolve – as is the open nature of the development. Again, like NatWest, approved third party developers will be able to write to the Evolve platform. Make no mistake, HSBC still has a long way to go, but in the last year it has shown progress, not least in providing FX options capabilities on the platform. As it increasingly targets the institutional space in e-FX, this work will need to continue apace, but the least that can be said is that the building blocks are now well established.

All of which brings us back to the choice of winner and, like last year, it is an extremely close call and depends upon your preferences. Content and control go to Citi, execution experience go to JP Morgan. This is not to say that each does not have the other’s capabilities, rather to stress the relative strengths of each platform. When the JP Morgan pivot to HTML5 is complete it will close the circle, but in terms of the last year both banks advanced at pretty much the same pace with Citi enhancing execution services and JPM adding content and that leaves us in a similar position to last year, hence a repeat winner.

Winner – Citi

There are, of course, still plenty of customers executing on the singledealer platform, but the main thrust of these venues has shifted in recent years away from execution towards content. Algo product suites have grown up in the SDP space, but even here so much of the offering is about the content – do the analysis, pick the strategy and start to trade.

With more vanilla execution taking place via third party venues, particularly aggregators, having easy access to the right content has become a vital part of the single-dealer experience and it is here that Citi has led the way. Make no mistake, others are coming for it, but for now Citi is king of the content.

Velocity fits together really well (it would be enhanced further if its corporate offering Pulse is fully integrated), looks good and is easy to navigate. Research and opinion is delivered via multiple channels from CV.com, what could be termed the traditional research approach, and through the Wire – still a great concept as a delivery mechanism – both backed up by a great alerts framework. The ‘mind-map’ approach to delivering research is still mightily impressive and indicates a thoughtful, innovative and intuitive approach to what can often be a morass of content from the research and strategy teams.

Aside from the huge improvements delivered thanks to a re-engineered pricing infrastructure, Citi continues to spend big on the UX and engineering of the overall platform and the benefits are there for all to see. Getting users onboard – and more importantly staying there – is all about the detail, and that is something Citi understands.

Using HTML5 allows the bank to shorten the development cycle, meaning it can get content delivered quickly, but its approach to building the UIs, with the technology teams fully engaged with the clients also means less of a “build it and they will come’ approach.

While we have noted that Citi lags JP Morgan in terms of the execution experience, the last year saw it pump out a lot of execution-focused products and services as it strived to narrow the gap. It also saw Citi make a major push to challenge at the top of the tree in emerging markets, which strangely for a bank with such a global footprint, wasn’t its strongest suit in recent years. The addition of non-deliverable swaps and NDF crosses filled a gap in the armoury, the bank’s work on its pricing engine also allowed it to deliver pricing in a more robust manner in deliverable emerging market pairs. Throw in specific work on local markets such as Columbia, Ecuador, East Africa and India (not to mention the local capabilities available in the excellent Pulse) and you now have a complete package for emerging markets.

While not exclusively for EM institutions, Citi also enabled distribution of its algos to allow local banks to access a broader range of liquidity via the bank’s internal ECN – this was part of a broader piece of work on the algo suite headlined by the aforementioned strategy giving access to the bank’s matching engine. A lot of work was done behind the scenes on the algo framework, which was needed it has to be said, but in the foreground more flexibility has been added to the strategies to allow clients more interaction and the pre-trade analytics package has been enhanced to deliver the metrics clients actually need that were not there before, such as the risk transfer price for the order and, during execution, the balance.

Another example of the bank filling in the gaps came with the new release last year of the Launchpad, designed to offer rapid execution of strategies. Pioneered by Morgan Stanley some three years ago, this service allows clients to build multiple execution strategies – perhaps related to an event such as the US employment report – and execute multiple trades by clicking on one tile. The user merely builds the strategy, allocates it one of the various algos on offer, and clicks when they want to trade. As can often be the case with Velocity, the concept is not new, but the bank has taken a good idea and enhanced it, in this case via the simple solution of placing it on the bank’s excellent mobile product.

Speaking of mobile trading, Citi continues to advance in what we still consider to be an important field, over the past year it has added frontier currency pairs to the app, enhanced quick order entry and added forwards and ‘if done’ and OCO order types. Extending the bank’s already excellent alerts framework, call levels are now available via the mobile app – something that may encourage those firms still reluctant to embrace mobile trading, to dip their toe in the water. As noted previously, it’s all about getting people to use the app.

Elsewhere, the options cube remains a long term favourite and last year has been enhanced through the addition of NLP (natural language processing) techniques, while Pulse has also continued to grow with more integration work into treasury management systems (TMS) and, most importantly, the Genesis project, which is a scheduler allowing the corporate treasury to establish rules for its hedging policy both centrally and among subsidiaries of offshore centres. It also includes the wide use of APIs and can extract exposures from the client’s ERP (enterprise resource planning) system, thus enabling hedging earlier than before.

FX Click, the bank’s FX prime brokerage solution is a multiple winner of these awards and remains excellent, over the last year it has added compression services for clients and executing brokers and it continues to push the boundaries of innovation in PB by working with firms like Capitolis on its new novation service.

The alerts framework has been enhanced with the roll out of Hoot, a broadcasting mechanism for snap comments from analysts as well as an early warning system for impending events. The bank has also rolled out its chatbot to assist clients with trouble shooting.

Underpinning everything at Citi is something that while we felt it was important when it was first launched four years ago, we had little idea it was going to be so pervasive – Command Centre. The sheer number of similar products rolled out shows how good an idea this was, but Citi still has the advantage of first mover here, for while others are responding to client requests for functionality, Command Centre already has it. Last year the bank added red flag notifications via the alerts centre and increased the flexibility of the clientgenerated reporting suite.

Rather like UBS’ Neo, one can look ahead to seeing Velocity with the thought that not much would have changed because it is such a complete platform – but yet again that feeling would be wrong. Citi has worked hard on the structure of the platform and chiefly thanks to its better pricing infrastructure, has been able to take a serious step up in terms of its ability to win business.

A visually rich platform that holds together really well, Citi has pulled off a considerable achievement, it has managed to keep Velocity ahead in an increasingly competitive market.

 

Galen Stops

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