Regional banks are met with stiff competition in the FX Swaps market, where the top 25 banks control around 80% of volumes, says oneZero’s Stephen Totten, head of institutional and quantitative products.
While their global reach is limited, regional players can make wins by focusing on local corporate clients and tailoring pricing to bespoke funding needs.
Speaking to Trader TV, Totten and Adam Collins, head of institutional sales of EMEA and Americas at oneZero, share their views on how local banks can enhance their competitiveness in FX Swaps through better real-time analytics tools, controls and pricing information.
Interview
Dan Barnes –
What sort of challenges do regional banks particularly face in supporting the FX swap business for their clients?
Stephen Totten –
Yes, mean, if you look at the recent BIS surveys, and clearly, the FX Swap volume continues to grow and grow, and in the upcoming BIS survey, we expect that trend to continue. But if you dig into the details, the top 25 banks have got around 80% of all the FX Swap market share, so obviously that leaves us a small pie for the regional bank sector. But that doesn’t mean they can’t compete. Most of that 80% is very much dominated by large institutional investors in Japan and Europe, etc. And I think the local the regional banks can definitely compete in the local markets and for their own corporate business, right, where they definitely have an edge,
Dan Barnes –
What can they do to help them compete more effectively?
Stephen Totten –
I think there’s two things really. So number one, they clearly have local funding needs, right? And sort of bespoke funding needs for their own franchise. So being able to reflect those skews and Axes into the market definitely helps. You know, they can win there on better pricing. And secondly, I think as the market becomes more and more electronic, again, we see that from the surveys, and we’re now at about, I think 60, 65% of Swaps are done fully electronically. I mean having them a great system that underpins that, where they can service their clients, 24/7 to meet their kind of needs whenever they need to do those hedges and effectively manage their own cash flows. Right? That’s really important.
Dan Barnes –
So Adam, let me ask you, about Steve’s point about getting the right tools. What sort of underpinnings do they need to get the capabilities to compete?
Adam Collins –
Absolutely so many of the challenges that Steve mentioned were the catalyst for oneZero looking to find a solution for this problem, right? It’s a real challenge for the regional banks. Now, oneZero decided, why don’t we try to build something innovative? So we built what we call our Swap Curve Manager. It’s obviously complementary to our existing suite of electronic trading products, technology, underlying solutions, but it is also a standalone product that banks can take on its own, in isolation. The reason we decided to build Swap Curve Manager was because the feedback from our regional bank clients was a lack of control over their Swap pricing. Okay, we’re often using external sources, Excel spreadsheets, very messy workflows, and they felt they were very, especially the traders, very detached from the process and the lack of control around their Swaps pricing. So what Swap Curve Manager allows you to do or what our clients do in a bank is actually fully control the curve, to see it in real time with via visualization, either via the UI on oneZero. You could also take it via a bank’s API. We can do a direct API connection into a bank’s infrastructure, and what it allows a trader to do is actually be very connected to that pricing, to be able to see the entire curve, to see where there is inconsistencies in pricing versus a chosen benchmark. As an example, we’re fully integrated with new change FX for the swaps pricing, which is obviously a market-leading product. And then traders are really enjoying being able to have control of the curve again, if there’s volatile markets. If there’s a liquidity change, if there’s anomalies in pricing, it gives the trader the ability to turn off any single point in the curve on the fly, a simple switch, an onoff button. And we also give our clients the ability to have full flexibility around their own client base. So if they’ve partitioned their client into, you know, A, B and C type clients, gold, silver, bronze, which most banks do, it enables them to even switch off pricing for a bespoke set or subset of clients, whilst keeping pricing on for other clients. So it’s back to getting, regaining control. It’s back to having full, full control of that full swap curves and ultimately enhancing, you know, pricing and capabilities.
Dan Barnes –
So if you’re thinking about Curve Manager, then that, I presume, is allowing them to respond more quickly and a more nuanced way to clients. Yeah, that’s allowing their relationships to be stronger, because they can have a more bespoke response.
Adam Collins –
Absolutely. And the real strength of Swap Curve Manager is not just the actual control of the pricing. It’s the analytics that come behind that, which we also provide so it enables them to evaluate their client base, evaluate the flow from their clients, and then ensure for future pricing, they’re ensuring they’re getting the most accurate and the sharpest, best pricing for that client to maximize their own P&L and also make sure the customer gets the best service.
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