Goldman Sachs has launched a new Axe UI on its Marquee single dealer platform that allows clients to access dynamic axes streamed by the bank in FX swaps. With the launch, the bank is aiming to disrupt the traditional voice driven delivery of axes and create a more efficient trading infrastructure for FX swaps.
The new UI has five levels of conditional shading, depending upon the strength of the axes, which are streamed across standard and non-standard tenors in both Goldman’s G10 and emerging markets franchise. Clients are able to build their own ladder to receive axes.
Key to the new service is work conducted by Goldman behind the scenes to build an infrastructure that allows the trading desks and e-risk management businesses to co-mingle their pricing. As Conor Daly, head of EMEA electronic FX sales at Goldman observes, the Axe Ui is a response to “market structure changes that are accelerating in the FX swaps market”, adding these changes, “have seen the mis-pricing of liquidity at times”.
At issue is the lack of work by third-party platforms especially, to update their framework to more accurately reflect the costs associated with the pricing of FX swaps, especially as the regulatory impact continues to increase. “There is a lot of complexity behind the UI, led by the electronification and growth of algos in the risk management element of our business,” Daly explains. “What was once a price generated by traders sitting behind a GUI is now a much more sophisticated process that generates a more accurate price that reflects our risk position, pushed to clients who often have a matching interest.
“This is a change in outlook for us and it has allowed us to become more focused on enhanced price distribution to specific clients according to a host of factors such as their RWA (risk weighted average) or CLS profiles,” he continues. “It means we can meet with our clients in a more controlled and tailored fashion.”
Perhaps the biggest factor in the new service is Goldman’s ability to more accurately understand the risk exposure across the wider bank. Risk feeds from a firm of its size are many and complex and it is in blending and accessing these feeds that the critical work has been done by the bank’s systematic market making (SMM) business, this has been overlaid with the trading desks’ input. “The approach we took was to first feed more aspects of the risk generation process into the framework so that different parts of Goldman Sachs could share their risk exposures, not just the trading desks” says Rob Williams, managing director of the EMEA short-term macro desk at Goldman Sachs. “We found that this generated deeper axes in much larger amounts.
“FX swaps at heart remain a simple funding product and people want to trade at the best possible price, as quickly as possible,” he continues. “The new Axe UI allows us to find similar counterparties with whom to match off, in a very simple fashion, and to make more liquidity available. This is essentially what the inter-dealer broker market does, we are making it a more efficient and cleaner process for clients – and that is what it’s about, getting the right axe to the right counterparties. By standardising our approach, it allows us to focus on clients and counterparties with whom it is cheapest to deal and we can get an easier match.”
The SMM business’ approach has been to focus on the big data challenges, leaving the computer to manage the day-to-day tasks using the latest analytical tools to present a broader picture of the firm’s exposures. As Williams notes, “It’s a more holistic approach to getting the risk we want as an institution by analysing a number of different views within the bank. That’s what probably excites me the most about it, we have built a vehicle to people to access Goldman Sachs’ risk in a mutually beneficial fashion.”
The new Axe UI was rolled out in late July and Daly says the response has been very positive, not least because the bank has been able to add new clients thanks to the service. “This has struck a chord with clients,” he says. “It is about granularity of liquidity distribution and we are engaging more with short macro desks and counterparties than we would previously have met on a
“Previously a lot of these firms would RFQ a number of players, often there would only be a small number making the price, the rest would be recycling,” he adds. “We have managed to migrate many of these firms off the multi-dealer platforms because we can offer them an entirely different and tighter price, in larger amounts, via our channel, without having to carve out credit. It builds and maintains attractive mutual relationships.”
There is also the opportunity to leverage the initial roll out and some of the features on Marquee. Daly says that already the new service is generating a lot of conversations and ideas for enhancements, namely around cross currency swaps and call levels. “The amount of feedback and number of conversations we are having is heartening and tells us the service is gaining traction,” he says.
The engagement is not just external, however, for as Williams points out the bank has created a more symbiotic relationship between the SMM business and the trading desks. “This work could have been done previously, but the axes would have been less aggressive and the size on offer much smaller,” he says. “We have been able to reduce the cost of doing business by providing a more accurate price that better reflects the cost of doing business. The end result is simple to use, but it is backed up by a tremendously sophisticated and complex technology infrastructure, that allows us to establish the digital rules of engagement to benefit all parties.”