P&L Report Card
If there is one intangible benefit in firms allocating budget to the FX businesses it is that it allows people to think innovation once more. After years of throwing resources at seemingly ever-increasing regulatory demands, there is a sense that last year – and this – the shackles are finally off and people can start thinking about product once more.
This is, of course, unfair to some organisations that continued to think outside the box over the past three to five years, but generally speaking we think it is fair to say that innovation had been rather thin on the ground until the start of 2018. That has changed, however and while some ideas are variations on a theme, there is a lot of interesting thinking and product development going on out there.
A repeat winner in this category over the years has been Credit Suisse and the bank has been busy in its principal business this past year as well as in the more high profile AES. The bank has leveraged deep learning techniques in rebuilding its pricing infrastructure, to the degree that not only is it comfortable (we are sure for certain clients only) to be pricing EUR/USD in 400 million, but it is confident in its pricing capabilities to be reengaging with clients that other institutions may have shunned in recent years.
Deutsche Bank’s Market Radar and its broader work in raising understanding around true execution costs also merits a mention, as does Morgan Stanley’s excellent QSI team for its work in transaction monitoring. BNP Paribas has pioneered plenty of things over the years in algo execution and last year built out its latest innovation, a live commentary during execution (this has been replicated elsewhere since).
With a spoiler alert for the weirdos amongst you who like to read through the awards from the start, more detail on these products are available below.
Winner – HSBC
There was much noise generated from HSBC publicly releasing details of its success in settling FX transactions using distributed ledger technology (DLT) which is inevitable given the general hype around blockchains in general – and equally inevitably there was some scepticism aired noting that it was an internal project.
That scepticism is, we would argue, misplaced, because FX Everywhere is without doubt a scalable solution – one that will benefit clients at some stage in the near future. So much of business is about efficiency gain, especially in periods of low returns, and as such this product with its focus on network interoperability, connectivity and efficient workflows very much is of its time.
With corporates especially pondering how to close the risk management gaps as well as cut the costs of running a globally diverse business, there is no little value in HSBC actually testing such a product internally – in other words in a large, globally diverse business!
FX Everywhere offers the transparency so important in today’s world, not only in terms of where a particular trade is in the lifecycle, but also around forward exposures and, during payment, visibility of funds. Equally, by moving from gross to net payments, as enabled by FX Everywhere, leverage ratios can be reduced, as indeed can the number of FX payments. Not insignificantly, the use of DLT removes the need for confirmations and reconciliations, processes that have been automated no doubt, but still remain part of a lengthy process chain that involves shifting information from one place to another (and another…).
FX Everywhere may have started life as an internal HSBC process, but we predict it will soon become the backbone of the bank’s client franchise in FX and payments. It delivers real benefits in improving existing business processes and enhancing existing capabilities, all underpinned by that important improvement in the bottom line and on the balance sheet. It is a solution delivered today that is very much future proofed.