P&L Report Card

In terms of banks seeking to make a move up the e-FX ladder the field has thinned out in recent years, mainly because so many have achieved their ambition to either rebuild or to establish themselves. The good news from this is that this report card can be very brief!

Probably the one attracting the most interest remains Bank of New York Mellon, especially given its traditional strength in the asset manager space and the quality of people it has been hiring in recent years. To paraphrase the famous saying, though, “A single-dealer platform isn’t built in a day” and the feeling is that the first priority for BNYM is its pricing infrastructure and risk capabilities.

From there a single-dealer platform will undoubtedly follow, especially as its core client base engages more with algos and, crucially, the analytics that come with them. For now, though, the feeling is that BNYM is probably more than a year away from delivering a meaningful SDP.

Another enigma is Bank of America Merrill Lynch, which appears to have dropped off the radar in terms of the people we are speaking to. The past two years’ visits to the bank have not delivered anything other than hopes that budgets will be allocated thus enabling renovation work to get underway, but so far the feedback has been that nothing of note has been delivered.

This may change and the bank has decent pedigree in the e-FX space, therefore it is worth keeping an eye on it. Likewise we expect solid progress from HSBC this year and the algo services, its blockchain initiative FX Everywhere and the first cut of Evolve, its SDP, mean it has made a good start. Again though, the sheer complexity of the organisational structure of the bank means progress is likely to be slow – we would love to be surprised this time next year!

A final area worth paying attention to is the regional bank space. While they will not seek to challenge the major players at the top of the tree, several regional banks are making the effort to develop a workable SDP. We have often noted over the years in these awards that the best ideas often come from left field – or in this case smaller players – so while the general landscape will be one of workmanlike platforms that enable the local player to compete locally with the global players, there may be a good idea or two emerge.

Winner – Nomura

We will confess there is a nagging feeling of trepidation in deciding this award because Nomura doesn’t have the best record when it comes to investing in its FX business – in fact, just announcing cuts to the business as P&L went to press. The business itself has always been solid, but when the firm’s overall management won’t support it with resources, what can be done?

That said, the firm has taken the route of several others in recent years and started its regeneration by ensuring its pricing and risk structure are up to scratch. We have already noted how there is a general feeling of optimism around several banks specifically because of their ability to compete for business; well Nomura sits in that camp, even more so because it has developed it first algo strategy to roll out to clients.

A potential differentiator for the firm is its strong position in Asian NDF markets, if it can ally its emerging markets market access and inventory to great technology it could become a significant player once again. It is unlikely it would challenge at the very top of the ladder but it would become a meaningful player.

The challenge then, is to build the SDP, but luckily there is some pedigree within the firm, for although the team behind it is largely long gone, Nomura Live – a direct descendant of the excellent Lehman Live – was a very good product. This means the firm should know where to target its resources and given how graphically rich Nomura Live was some eight years ago it has a starting point.

One last factor in favour of nominating Nomura for this award is done so with a little trepidation given our (misplaced) confidence in the Bank of New York-Virtu Financial link up a few years ago, and that is its recently announced investment in the Brevan Howard artificial intelligence venture Aim2.

Nomura is the first third party to invest in the venture, which was launched three years ago and uses data science and machine learning for alpha investment strategies. This should further strengthen the bank’s ability to price and hold risk in markets, thus providing even more confidence in its ability to deliver the allimportant content around it.

Galen Stops

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