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Bloomberg’s Tod Van Name: Building An FX Giant

Tod Van Name, New York-based global head of FX and economics product at Bloomberg, discusses with
P&L?s Colin Lambert, the service provider?s break out year, building its presence and market penetration,
as well as it?s move into the emerging markets sector. 

Colin Lambert: 2012 was seen in many circles as a tough year
for the industry, how was it for Bloomberg?

Tod Van Name: We had a great year at Bloomberg and in FX in
2012, it was probably the year when we broke out and made a
serious move in terms of building our presence and market
penetration. FXGo volumes were up over 80% – and not from a
small base either – which is very pleasing, and we added
products and geographies.

CL: Adding geographies sounds like a build out in emerging
markets
.
TVN: Bloomberg is a leading provider to the major centres
through its historic strength in fixed income and equities, but
several years ago we focused on building out our emerging
markets capabilities and last year was the year the strategy really
paid off. Growth in the Middle East was especially strong. 
We want to be a leader in emerging markets FX and I would
highlight two developments last year that support that. We
created an NDF clearing link to CME Group – that was the first
connection between an FX trading platform and a clearinghouse
– and we also became the first platform to capture live interbank
pricing from the onshore renminbi market through CFETS.
The key to success in emerging markets is local knowledge. That
means you have to be truly global because you need to
understand the local nuances of markets and ensure you put the
right people on the ground in the right places. That is what we
are doing.

CL: It sounds like you very much sit in the China growth camp
when it comes to the FX market?

TVN: Absolutely. As China liberalises, the yuan will become an
even bigger part of our market, currently it is probably
responsible for about 9% of Asian currency flow – some are
speculating that could hit 30% as more centres sign agreements
to support its use. 
China’s liberalisation will change the landscape of global
markets, it won’t be a sudden transition, but it will happen which
is why we have solutions in place to help make that transition as
seamless as possible for our clients. We are already seeing good
growth, but there is without doubt more to come.

CL: I think it’s fair to say that Bloomberg has had a couple of
false starts when it comes to building a serious FX product suite,
but it now seems established as a major player. What changed it?


TVN: I think we got really serious about FX seven or eight years
ago and obviously it takes time to build such a big business, but I
agree we are there now, we cover the full spectrum of FX
products. What changed it was the quality of solutions we proved we were
able to deliver – everything is about having the right product that
has usability.
For me personally, I started taking Bloomberg seriously when I 
was at Fuji Bank running the options desk and they showed me
their options product, especially the vol surface. I was a little
skeptical at first because there was the perception back then that
it wasn’t serious about FX, but that changed everything for me. It
was clear the firm had something good and its plans to build out
were sound and aimed at improving the user’s experience. 
That also convinced me to join the firm when the opportunity
came up and I have been very focused on maintaining and
building on that initial momentum. 
We have now demonstrated completely that we are a major
player in the FX industry and that the solutions we provide are
real, workable and add value to users.

CL: So in terms of workable products, what are your customers
telling you?

TVN: We have seen a 30% increase in the number of FXGo users,
which is very good in a tight budget environment, yet customers
are telling us they want a better way to deal based on their text
messages and have full STP of their resulting trades. We are
working to introduce this functionality to FXGo including
liaising with a third party provider to allow clients to integrate
new chat transcripts and deal tickets into existing back office
applications. In response to customer demand we are also
working to expand our RFQ functionality to other asset classes.

CL: As a former options trader, that product’s rollout must be
close to your heart?

TVN: The FX options market has had a tough couple of years,
the GFC stymied growth and forced people to reconsider how
exposed to risk they were, especially the counterparties they
used. This led to volumes flat-lining at best, but things are
changing. 
The regulatory environment in which we exist is forcing us from
a predominantly voice traded market to a more automated
process. The SEF rules will help raise transparency and give
confidence to users of FX options that they can better manage
their credit risks and that will be a big part of what I think will
be a growth story over the coming years. 
Options will become popular again because if they are used well,
they offer an intelligent way of hedging exposure, which is why
we continue to expand our options franchise.

CL: The multi-dealer platform world in FX options is very
crowded – how do you stand out?

TVN: By creating and building solutions that enhance the
workflow experience and support the relationship between buyer
and seller. The winner in the FX options space will be the
provider that has real workable solutions and not just executable
rates – it’s about workflow, end-to-end workflow.

CL: So what does Bloomberg offer there?
TVN: Our trading solution for FX options provides access to 
global and regional banks for competitive pricing and
confirmation. Pricing for single and multi-leg strategies can be
manual or autopriced, and all the trades are commission free.
RFQ requests can be initiated directly from our powerful option
pricer, OVML, where they are able to analyse, back test and
value portfolios, they can also create and modify structures and
then submit them for multi-bank pricing – that is a real efficiency
gain.


For the sell side, we provide tools for them to add colour and
analytics, as well as generate ideas. This gives them something to
talk about with their clients – idea generation is very powerful
for the relationship.

CL: An area I have long considered ripe for growth in the e-
space is the forward and FX swaps markets, but it never seems to
happen. Do you agree, and if so, what is holding things up
?

TVN: We are starting to see substantial demand for swaps and
forwards and I agree it’s a huge growth area. I think it will go
electronic but it could take another one or two years because we
are trying to change dealers’ behaviour and that takes time.

CL: Looking at spot rolls, obviously there is still the fear that
they may get caught up in Dodd-Frank in the US, will regulation
help drive automation of this product segment?

TVN: I think it’s more about the solution than the regulations.
Dealers in the FX swaps market are used to dealing close to mid-
market and the RFQ solution doesn’t really support that, so the
industry is looking for something different. It will involve subtle
changes to the user interface, but it is viable so we will soon 
have a solution for the market.


To go back to your original point, I am a little surprised it hasn’t
got there yet, especially as we are not talking about a particularly
long curve here, but I strongly believe if we are able to
demonstrate that what we are providing will make clients’ lives
better, then the change will occur. You have to give people a
good reason to change how they operate and that can only be
done by providing a solution that demonstrably makes their day-
to-day processes better.

CL: What is your take on the regulatory landscape?
TVN: It’s a challenge. We need to be flexible in dealing with
how the market is changing especially when there is so much
riding on the decision from the CFTC about how the regulated
FX markets may look. It is difficult to develop solutions without clarity and the reality
is that FX markets are not the same as IRS or CDS markets –
that makes for a challenging environment. We are keen to work
with the regulators and provide suggestions for how the
infrastructure should look. There is a huge cost in keeping up with the changing landscape,
but there is potentially an even bigger cost in doing nothing. That
said, we cannot just throw solutions at customers, they must be
consumable, and for that we need regulatory clarity.

CL: Best execution is another hot topic at the moment,
specifically the use of algorithms to execute business. This
means it is also another area of hot competition. What do you do
to differentiate yourself here? 

TVN: Our core philosophy of complex solutions allied to multi-
bank connectivity extends to the algo space, where we have 10
different providers over FXGo. Clients can route to the algo or
provider of their choice, so again we are supporting the
relationship.

There has been a big uptake in algo usage and I think that will
continue. Bloomberg brings together TCA [transaction cost
analysis] and execution functionality that helps users prove best
execution. People are more sensitive to their fills than ever before
because slippage is part of the cost of them doing business. We
are seeing more interest from the corporate sector in algos
because as more people move from the sell side to this sector,
they are bringing with them the skills and understanding to
improve the execution process – we are supporting that
improvement.

CL: The noise around the London 4PM fix becomes louder by
the day, it seems so many people are dissatisfied with it, and it
has always struck me that even basic algos such as TWAP and
VWAP could offer a better solution – especially in a multi-
provider environment such as yours. Is that a fair assessment?


TVN: Algos are an alternative for fixings without a doubt, but it
is important that you retain some of the characteristics of a fix
and have more than one available. Customers like choice, which
is what we provide, because they should never rely upon one
provider or one strategy. By being agnostic as to which algo they
use, I feel we are offering a strong alternative to fixings, and of
course, we have a Bloomberg fix every 30 minutes for those
users that just require the data for example for their mark-to-
market activities.

There is a lot of interest in benchmarks other than the 4PM fix
because of the price action that so often accompanies that event,
but it’s one thing to say you want an alternative and another to
actually provide it. We are seeking to improve the clients’ overall
execution experience through the provision of third-party algo
execution strategies, and also allow them to use our BFIX rates,
available every 30 minutes in over 700 currency pairs and 2600
forwards.

Overlaying the execution efficiencies, we also support TCA
generation to help the banks explain their strategies and the
benefits they are bringing to their clients. TCA will only grow in
importance and I expect the range of offerings to increase in both
breadth and sophistication, especially where banks are able to lift
techniques and functionality from their equities businesses – after
all, the equities world has been dealing with TCA for years now.

CL: How much of an advantage is it being well embedded in the
desktop space when it comes to building an FX business?

TVN: It’s a tremendous advantage. We have a lot of desktops in 
the fixed income and equities space, and we are equally well
embedded in the FX space. We have long-standing relationships
across those sectors and we now dominate the desktop space in
most of them.

Familiarity is important when building a new product line, so we
were fortunate to have such a strong presence in, for example,
the asset manager space, because we are able to help them
execute their investment strategies and subsequently hedge their
currency exposures. To be able to offer this, all in one place, is a
very powerful value proposition.

CL: So what do you think has driven your expansion and success
of the past few years?

TVN: We offer a seamless end-to-end design across FX products,
not just spot and forwards, that includes news, idea generation,
valuation and execution. These key elements of a service need to
hold together if an efficiency gain is to be realised.

People are also very conscious of their screen real estate and are
looking to control it even more. We offer them a single solution
that meets their requirements which means they can minimise
their cost of technology – something that is very important in a
tight budget environment.

I also think people are now acknowledging the benefits of
partnering with Bloomberg. Banks want to be top of book when
pricing their customers because we don’t charge for trading, they
also understand that our buy side penetration is such that a great
number of their clients already use Bloomberg. It is also
significant that a large number of non-FX players use Bloomberg
for FX trades, so it is another source of business for the banks.
On top of that our global presence means we now have 300-plus
institutions pricing on Bloomberg by means of a streaming price
or a manual price – that encapsulates the FX market.

CL: I would argue that there are not 300-plus liquidity providers
in FX, more likely there are 12!

TVN: I don’t think concentration is that high in FX, but I accept
there is a degree of liquidity recycling going on. That said, each
price has the individual bank’s skew in it which provides
variation.

I would also argue that outside of the G10, as the demand for
local currency liquidity increases, there is more space than ever
for local liquidity providers that specialise in just a few
currencies. We have certainly sought to tap into that and provide
localised solutions for local banks – we think it’s a way of
helping local liquidity providers compete.

CL: You have seen good growth over the past two years, what is
the roadmap and aspiration for the next two?

TVN: We want to continue to be stronger, faster and better at
everything we do. We are very focused on where we can work to
improve our customers’ experience and workflow efficiency and
that will not change, especially in such uncertain regulatory
times.

There are still plenty of growth opportunities in areas like
forwards, swaps and options, as well as in emerging markets. We
are only at the beginning of that story and we will continue to
focus here, not least because of the positive reaction to our
efforts so far.
We want to be at the cutting edge – and we are working on
something that could be a game-changer – because that is where
we want to be as a business. An organisation the scale of
Bloomberg has to ensure it delivers quality of product as well as
breadth of product, so that ethos will underpin everything we do
– it is ultimately about getting the detail right because you
cannot just focus on one element when you are delivering an
end-to-end solution. 

Paul Gogliormella

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