P&L Report Card

It may be a surprise to some that we do not view this as the most competitive category in these awards, and that is thanks to the sheer scale of two platforms in particular, Citi’s Velocity and JP Morgan’s eXecute. That is not to say that other excellent platforms do not exist, they do, but not on the scale of those two behemoths.

The good news is that it’s been a pretty good year for investment in FX platforms – a lot of it filling gaps, but enough about creative ideas to help clients manage their businesses better. The competition in algo execution has probably increased, but it is interesting how there didn’t seem to be a commensurate rise in interest from clients
– there has been a bump, anecdotal evidence tells us – in algo usage, especially in smaller tickets, but bigger tickets still seem relatively rare. Time will probably tell if that will change, but we remain optimistic that algos will come into their own, especially when clients seek more control over their orders.

The other big area for competition remains structured products, as we have noted. Probably the prime mover here has been Deutsche Bank, which has very much focused, as part of its return to being a corporate bank, on delivering simple, bespoke, solutions to solve clients’ complex problems, but competition in this field is red-hot and likely to remain that way.

We have already noted how UBS has enhanced the FX component of Neo over the past year and we have noted before in these features how FX on Neo seems to have, to a degree, taken a back seat to other asset classes. We would argue, however, this is simply a question of how big the “other” is. When it comes to Neo, FX is not just on the platform with US treasuries and commodities, it also has to compete for screen real estate with bonds, credit, equities and structured products. This means it inevitably gets overshadowed at times, but that does not mean it lacks quality. The confidence the bank’s re- engineered pricing and risk engines provides is starting to pay off, not least in how feedback from market participants has made clear how competitive UBS’ pricing has become.

If there is one area that UBS needs to continue to play catch up we would suggest it is around the algo offering. The algos themselves are excellent, but there is a lack of pre-trade and in-flight analytics that are providing clients with so much comfort elsewhere. This is probably not a big lift for the bank, but for now it represents a small gap in the offering.

The same can be said for another bank that has long represented excellence in FX algos, Credit Suisse, for while the bank has continued to reinforce and strengthen its infrastructure and focus on improving execution performance, it is yet to really nail that pre-trade analytics piece on Edge FX. We tend to the view that Credit Suisse continues to be impacted from a prolonged pause in investment in the FX business five or so years ago and that it continues to play catch up. The work the bank does is excellent and it remains competitive, which is testament to its efforts, but in such a competitive market the incremental gains tend to be smaller than hoped. The bank is coming back – the latest helping hand comes from the support given to rebuilding a serious principal FX business – but it will inevitably take longer than the bank wants.

If we were to pick a third platform to sit alongside the top two of Velocity and eXecute, it would be Goldman Sachs’ Marquee, which continues to impress and is at the front of the race to deliver a fully functioning HTML5 experience. The UX on Marquee is noticeably sharper than it was, and in a pleasing development for this reviewer, a couple of old favourites have reappeared on the platform, not least the small bar that indicates the day’s range and where the market currently sits within that. It is simple, but informative, functions like this that really help GUI users navigate the markets.

If we were looking at a bank making a move, on the other hand, we would point to Deutsche Bank, for we continue to hear very good feedback about its FX business generally and especially through the recent troublesome times. We noted last year that Deutsche was staging a comeback and 2019 and early 2020 have seen that accelerate. The FX business has clearly been identified by the bank as a key function and the investment dollars remain available. The development will be limited by the bank’s narrower ambitions more generally, but expect Deutsche to play an even more competitive role going forward.

The point about narrower ambitions is actually an interesting one, because we are wondering, with one or two exceptions perhaps, namely Citi and JP Morgan, whether Deutsche Bank is in front of the curve when it comes to its focus. It rejected the “universal bank” model two years ago and has decided to focus on a few key areas in which it excels – FX being primary among them. Feedback suggests the bank has been successful in its client re- engagement after a tough couple of years when the bank’s very survival was in question, and this reconnection will be critically important as it evolves to a corporate bank – more pertinently who it reconnects will matter.

The sense is that in not being all things to all people, Deutsche will broaden and maintain a very focused client base – it will be working with the clients it wants to – it should not be underestimated what a change in psyche that represents for the bank, even if it has perhaps been driven by broader financial concerns. It is unlikely to be the only bank to make that decision either, others will surely go the same path, indeed they probably already are. We have noted in the pages of P&L’s Squawkbox how “difficult” clients are finding it harder to maintain existing service levels with banks and other LPs because, quite frankly, their modus operandi no longer suits institutions less focused on risk absorption and more on being a facilitator.

On which note, we will close out this Report Card with an appeal that has little to do with these awards. It was interesting to note that some of our later feedback (ie, during the volatility spike in March), reported that some banks that have been busy touting themselves as a one-stop shop for all FX products suddenly decided they were specialists – and in the G10 at that.

This is neither helpful nor healthy for the FX market because it highlights the dangers of a squeeze on the regional, or specialist players. In the past, in certain currency pairs, local banks would have had the technological capabilities to cope with volatility and volume spikes, but as they have been squeezed out by the “global” players their investment levels have dropped and their own reliance upon that top group, has risen.

Through the prism of these awards, that should matter little, but if there is anything good to come out of the pandemic that is not revenue related, it is to be hoped that more regional banks return to an investment cycle aimed at enhancing their own capabilities, especially around pricing and risk management. It doesn’t have to be a huge investment in building something Velocity or eXecute like, but it would be helpful if regional players had the resources to fall back on if their “global” partners suddenly decide they are anything but.

So, to decision time; do we go Velocity or eXecute? The choice is extremely difficult because they are very similar in so many ways and both have very loyal supporters. The past five years or so has seen Citi and JP Morgan engage in a virtual game of leapfrog when it comes to our Best FX Platform Award, driven largely by the development cycle. The last leap forward was Velocity 2.0 and that has seen Citi win this award for the past two years. However, the past 12 months has seen JP Morgan edge ahead with eXecute – of course, we cannot fail to note that Velocity 3.0 is due in the next 12 months, so what price another swapping of positions next year?

Winner – JP Morgan

Probably the first thing to note about eXecute 2.0 is that, thanks to HTML5, it looks really good. Information is easy to pick out, and digest, and, unlike some previous iterations of JP Morgan Markets, a lot can be put on the screen without inducing a headache! The UX is an absolute triumph and the reward for quite a few years’ hard work by the bank’s teams – it just looks cool!

Of course, this is about so much more than how good something looks – we recall the early struggles of a pioneering platform in this field, Matrix, which looked great but took some time to match that look with working functionality – and eXecute 2.0 doesn’t disappoint. Aside from the behind- the-scenes work to improve the performance of the platform and to enable the bank to unbundle its services, JPM has simplified its algo order entry process and quick order entry; rationalised how it uses one of last year’s outstanding product developments, Algo Central, and added to its product range in structured options.

As is the case elsewhere, the migration to HTML5 is not quite complete, and again, as elsewhere, FX options is the product last in the line for the change. Notwithstanding that, JPM has enhanced the pricing tool for multi-legged and multi-product strategies. Looking ahead, given how FX options appear to be struggling to really take off in the multi-dealer space and the opportunities for building client stickiness through analytical tools, the migration of FX options is an important step in the journey.

Other factors driving this win for eXecute – and we shall get to the execution tools later – are how the superb desktop experience is replicated on mobile. As a repeat winner of our mobile award it is inevitable that the bank remains in the top echelon of providers now, however, much of the product addition work has been away from FX, with Rates and precious and base metals leading the way. The coming year will see FX options added to mobile, which will be a giant leap forward for the channel.

While JPM has been a pioneer in the execution field for a few years now, there were a couple of gaps in the service, two of which have been more than adequately filled.

The first is what could be termed a quick strategy execution function, as pioneered by Morgan Stanley three years ago. The client is able to build strategies for certain scenarios, establish parameters around slippage for example, and then, using a series of orders using the bank’s Panther execution strategy, one click executes the basket of orders. StratX, as the JPM product is known, was around last year, but the past 12 months have really seen it taken up and fully rolled out.

The second addition fills a gap that has been an important factor in its never-ending battle for supremacy with Citi. Imitation is the sincerest form of flattery as we all know and where Citi has scored for several years with Command Centre, so JP Morgan has now fully rolled out its own client administration tool in Control Centre.

We have for some years now expounded the importance of having something like this to provide clients with control over their activities on the single dealer platforms and it is probably even more important in the current environment with workforces so dispersed. Control Centre does exactly what it needs to, and while it may not be a headline-grabbing aspect of eXecute, it is without doubt a very important addition to the overall service provision.

One final aspect of JP Morgan’s FX offering we would like to highlight before we move on to our Best Execution Award is a small but positive token gesture, FX Code- only liquidity pools where the client can interact with an aggregated pool of liquidity, of which LPs have signed a Statement of Commitment to the FX Global Code.

JPM is one LP in this pool, which is managed by FXSpotStream, and eXecute users can select this pool only in which to execute with one of the bank’s algos. This represents an interesting trade off – the client gets an aggregated pool of liquidity, thus helping them to retain the benefits of a single dealer platform, but that pool is subject to last look, something that for many clients is not, or rarely is, an issue on a single dealer platform or direct bilateral feed.

We have been writing about, and waiting for, evidence of the benefits from the great migration to HTML5 for some years now and in JP Morgan’s eXecute we have the definitive example of why the work has been done and how well it works. In truth, there has not been much to criticise about JPM’s FX offering on JP Morgan Markets for some time now, but the last year or two has seen it not only fill in the few gaps it had, but develop fully into what it is – the best FX platform out there.


Colin Lambert

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