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Articles tagged by Single Bank Platforms

“Eye on the Client”: The 2017 Profit & Loss Digital FX Awards In broader society, the year 2016 was a dichotomy – it was a horror year in terms of global celebrities passing away, especially musicians, but it was a great year if you are a fan of sports teams like Leicester City or the Chicago Cubs. Likewise, it could be easy to claim that 2016 was a horror year for e-FX in terms of product development and budget for anything other than compliance and regulation; however, there were pockets of optimism in the industry. It should also be noted that in terms of product delivery, the slowdown is natural and should have been expected – after all, if you already offer most products and services it is difficult to add to them.
The 2018 Digital FX Awards Eye on the Client If one phrase could describe a year in financial markets, 2017 would definitely be the year of MiFID II – the regulation dominated a lot of headlines, thinking and, importantly, budgets throughout the year. In the single dealer platform space, this meant that if other work was done, it probably happened early in the year while people were still somewhat complacent about another delay to the regulation. Once we entered the second half of the year, the message from all banks was pretty much the same – technology budgets and resources were sucked up by MiFID II on a huge scale.
Best Platform P&L Report Card Although there is still definitely a push towards homogenising asset classes on the part of some regulators, generally speaking the last few years have seen practitioners realise that FX in particular, cannot fit into any of the boxes they currently have labelled “equities”. Some banks went down this route and tried to lever FICC into the equities model and generally speaking it didn't go well – as shown by those institutions retreating back to their siloed models. This does not mean, however, that a strong multi-asset class offering cannot be built – it most certainly can, but it does mean there are inevitable challenges associated with doing so. First and probably foremost, which business runs the project? Even within FICC there are different drivers and requirements, throw in equities and the number multiplies by several magnitudes.
Best FX Platform P&L Report Card It is fair to say that for the single dealer platform in FX the comeback is complete. Just a few years ago one could hardly move for predictions of the product’s demise, although it is noticeable that few, if any, major banks stopped investing. There was a hiatus of sorts at some institutions, but 2016 saw the realisation that investment is a continuous process and 2017 saw the first fruit of those investment seeds ripen. It has to be said, there are still one or two banks continuing to debate the need for investment in a single dealer platform, however the discussion is probably part of a wider conversation about the institution’s willingness to commit to FX full stop. At the top end of the table, investment dollars are not bountiful by any means, but they are there, and are being used.
Best Execution P&L Report Card Although several firms have been focused on this for years, it did seem like a year or two ago, a shroud was lifted from so many in the foreign exchange market and they were able to see what best execution really meant. Gone were the days of ringing your mate to get the deal done, or directing a trade to a provider as a “reward” for business elsewhere – suddenly FX execution was a big deal. If we are being honest we still think there are too many clients out there who don't take their FX execution seriously enough, but for those that do, the sell side has come up with solutions that offer plenty of choice.
2018 Profit & Loss Innovation Award P&L Report Card With the words “MiFID II” ringing in our years we have to say that, yet again, last year was not a great one for innovation. We are sure that some great ideas exist – it’s just that the budget wasn’t available to make them a reality. Another factor in the slow down in innovation we have observed over the past few years is the maturity of the single dealer platform industry, when so many are full service, where do you go? Throw in the fear factor that still permeates the FX banking world and you still have people coming up with ideas, thankfully, but executing them is a difficult and arduous task – thanks mainly to “Dr No”, or the compliance teams as they are otherwise known.
Editor’s Choice Report Card Famously the most subjective of our awards, last year Colin shifted its focus so that, rather than being awarded to the bank perceived as most likely to challenge for supremacy in the single dealer space, it would go to the one that was most likely to win more awards than it did this year. I agree with the logic underpinning this change – namely that we’re at a point in time where it is unlikely that there will be, as Colin put it, a “serious move” in the single-dealer space – and thus will also embrace this approach. At the outset I’ll note that this criteria clearly disadvantages the platforms that traditionally win the most awards each year, even though we clearly think that these are the most well-rounded platforms available.
P&L’s One to Watch in 2018 P&L Report Card With the shackles being thrown off at so many institutions in terms of budget and resources, this is an interesting category. Historically this award has been about the late movers, however last year we changed tack a little to reflect where we think the big moves will come from, meaning even those institutions with all-singing-all-dancing platforms were contenders. The development cycle’s length means it can be tricky to identify a mover in the succeeding 12 months and this can probably be used as an excuse for last year’s winner of this award, Bank of America Merrill Lynch, because the bank still seems to have some way to go. As noted, it is vital that the e-FX teams get budget if it is to continue to compete and build on what are some good, solid foundations.
2018 Client Experience Award P&L Report Card It is interesting to note how many banks are suddenly re-focused on the user experience or UX. The last time we saw this level of enthusiasm was probably 2010 following the high profile impact of Matrix, which says something about both clients’ rediscovered willingness to engage with the single dealer platform, as well as the push for greater analytics capabilities. Whatever the driver, users of platforms are much more demanding than they used to be in terms of how easy it is to use, move around and find what they are looking for. This also means that to stay at the top of the tree some attention has to be paid to the UX and this was difficult in a year in which MiFID II dominated so many budgets and resources.
Best Analytics Package P&L Report Card This award was previously entitled the Market View Award but we have decided to rename it to better reflect the original requests from readers and users of the platforms that we look at, which delivers good analytics in a flexible fashion and makes it easy to understand what is happening and – importantly – what is likely to happen, when a client is preparing to trade. We were unsure as to the validity of the award when it was first requested, if we are being honest, but the events of the past two or three years, during which clients have started to look much more granularly at their execution processes and have also at the same time had more of the decision making thrust upon them by changes in the regulatory and banking landscape, mean it is more relevant than ever.
Best FX Options Platform P&L Report Card Although there is much happening in the broader market, specifically around clearing and other regulatory related changes, in the single dealer platform space not much has changed in terms of FX options. Yes, most banks have added products to their roster – mainly second generation exotics aimed at the private banking world, something most banks seem extremely interested in – but in terms of functionality not a lot has changed. One reason for this is the lack of real growth in FX options trading - if new volume is not coming then why spend investment dollars? Another reason is options, above all other products, benefits from familiarity when it comes to building a structure or even pricing a single ticket – a generation of traders has grown up with the same look and feel. They know where to look, so clearly it works, therefore why change it?
Best Mobile Platform P&L Report Card For the second year in a row we are able to celebrate more clients coming around to the benefits of mobile trading – and for the second year in a row we cannot point to any new apps on the market! The obvious cause of this lack of discernible movement is likely to be the ubiquitous MiFID II, which, as we have already stated, dominated thinking and budgets last year. Another factor may be – and we find this amazing in 2018 – some lingering doubts over the technology’s suitability and the control framework around it.
Best Rates Platform P&L Report Card Like the boring guy at a party, we at Profit & Loss have been waiting for this award to disappear, but just as the boring guy occasionally says something funny, every year we talk about cutting the category, only to be shown enough functionality to keep it in! That should not be construed as meaning there is a lot out there, fixed income and credit on single dealer platforms remains a fairly closed shop, delivered either via a futures offering or, in the case of some of the bigger players, with a long list of Rates products for trading on a principal basis.
Best Commodities Platform P&L Report Card For many years this award was something of a foregone conclusion. While the many banks offered various products around precious metals, JP Morgan and Goldman Sachs stood out by having significantly stronger and broader commodity suites, with the latter traditionally winning this award. In 2016 this dynamic began to change. The gap between these two banks started to close, not because Goldman Sachs has stood still, but rather because JP Morgan clearly put a lot of effort into improving its commodities offering, adding an impressive range of new products and functionality.
2018 Product of the Year P&L Report Card Contenders are thinner on the ground this year, thanks mainly to “that regulation” stealing the limelight and the development dollars, however there are one or two areas that have seen progress. The first, as we hinted at earlier, was in the control space – given the client not only control over their execution, but also helping them to run their business. Citi’s Command Centre is an excellent product, as we have already noted, and the last year saw several players roll out their own version, although, inevitably, they are not as sophisticated and advanced at this early stage as the pioneer they are all trying to chase.
Best Emerging Markets P&L Report Card As data has continued to improve in emerging markets so too has the level of competition risen amongst the banks for what remains, still, high value business. This data has been driven to a small degree by more dealing (or pricing) on public platforms, but generally speaking, given fears of market impact (and given how concerned clients are about it in G10 they must be traumatised when it comes to EM!) emerging markets remains a single dealer, or small aggregation, game. The aforementioned improvement in data has meant better analytics, and it is noticeable that those banks offering good analytics packages have extended their offering in emerging markets – clearly this is an area of differentiation.
2018 Super Regional Award P&L Report Card If there is one area with plenty of room for growth in the single dealer space we believe it is in the regional or superregional segment. This is always a sensitive subject, as regards who we consider to be in this bracket, but once again we have decided to look at banks not widely recognised as being in the top seven or eight banks in e-FX, but that does have some really good regional strengths. Rather than look at what is a very broad church, we have tapped into our regional networks for feedback on the various players and gone from there – previous observations are also included. Looking ahead, we may decide to more closely define this category and subject the banks therein to the same scrutiny we do the top tier – something for them to look forward to!
Best Banks Platform P&L Report Card This is becoming a very interesting area in the FX industry because it was noticeable this year that some banks who had previously been very keen on servicing their peers, were less so in 2018. We suspect this is one consequence of regional banks having to demonstrate a good degree of best execution for their own clients, meaning in turn that the value left on the table for the bigger bank is reduced. Lower margins equals less satisfaction on the part of the big bank, equals a growing reluctance to go the extra yard for the regional player. The fact remains that even the smallest regional player probably has one or two quants crunching the numbers on the FX business, and this in turn leads to a more efficient process, but also smarter execution – again, to the cost of the top level LP.
Best Corporate Platform P&L Report Card It’s all very well focusing on the large corporates who we all know, but this space is so much more diverse than that – and in terms of value, many bankers will tell you in an unguarded moment, that the real value lies further down the food chain. Most multi-nationals have very sophisticated technology and often execution desks, but when you go further down the chain more often than not the FX hedging is handled as part of its daily tasks by the accounting function and people with only a passing knowledge of the infrastructure and nuances of the market.
Best Real Money Platform P&L Report Card Thanks to everyone’s obsession with MiFID II, the asset manager space is another where we have not seen a tremendous amount of movement in the past 12 months. Yes, there is a greater focus on execution quality and more managers have discovered the words “market” and “impact”, but overall what we are seeing is the continuation of a trend that started in 2016. Executions desks are under as much pressure, if not more, than their service providers, which means they are searching for the tools and services that can help them deliver those vital extra basis points in performance.
Best Leveraged Sector Platform P&L Report Card We have noted in these pages before how the hedge fund industry – with its myriad models – has been at the centre of the banks’ move to cut the client tail. For those funds that do not see FX as a source of direct Alpha – they still want to make money off their FX trading if they can of course – there has not been much difference. For those global macro players, who are having such a rollercoaster existence, however, the story, is different.
Best Traders Platform P&L Report Card This award has historically been about information and interaction – providing traders with the right information in an easy to read format, preferably on the same desktop (or mobile device) as their pricing. Traders have always relied upon analytics because their decision making process has to be as informed as it can be if they are to succeed, especially in today’s event-driven markets. This means a clean dealing tile – the origins of this award – remains important for GUI traders, and we would highlight that GUI traders typically offer better value to a provider bank than a fully automated client. It equally means interactive execution tools, backed up by great analytics.
2018 Post-Trade Award P&L Report Card Well we’ve mentioned MiFID II enough in this feature so it’s time to focus on the area that bore a lot of the reporting brunt, for post-trade is very much about the box ticking, the checks and balances that permeate the regulation. We continue to see a drift towards a more utilitarian approach in post-trade – as we noted last year, the more focused the rules get, the less room for manoeuvre there is, therefore collaboration is probably the way forward.
Algo Provider of the Year P&L Report Card T his has become a very competitive field over the past couple of years and is showing little or no sign of slowing down, for just about every major FX bank has a suite of algo execution tools available for clients. Achieving higher adoption rates remains something of a problem, however it is noticeable that the advent of third party mechanisms to analyse execution quality does appear to be giving clients some confidence in using algos – this is important if the impressive budget outlay is to be rewarded.
Best Order Management P&L Report Card Although the algo is taking on more importance in terms of order management, the relatively slow take up, allied to more short term bursts of volatility, means that customers are refocusing their attention on basic order management. The trust issues that drove a wedge between some clients and the banking industry appear to be on the way to being, if not totally, solved, not least thanks to sometimes draconian oversight at the banks. Thus an old friend, the order, is making a comeback. Of course, if we were to be cynical we would say it is doing so because leaving an “at best” order neatly shifts the best execution emphasis back onto the bank!