For more than 30 years, Eurobase has been providing world-class, reliable, integrated treasury and trading solutions to banks and financial institutions worldwide.
What impact has regulatory compliance had on the electronic trading industry for Foreign Exchange?
Financial scandals such as the WMR FX fixing scandal has seen greater scrutiny placed on the foreign exchange market. These misdemeanours have culminated in an array of regulatory legislation passed, and a new Code of Conduct which has placed an extra burden on the bank’s internal systems and processes. What has become clear, is those institutions who have invested in technology have found it easier to adhere to the new regulatory regime, whereas banks who rely on old legacy platforms sometimes suffer from the following issues: -
- Lack of STP resulting in the build-up of numerous manual processes
- Fragmented operational workflows that reside across multiple systems
- A complex IT landscape
- Difficulty achieving regulatory compliance
- Significant and unnecessary operational costs
- Solutions difficult/impossible to deploy in the cloud
Why would investing into an electronic FX trading platform help?
As liquidity provision has become concentrated, the role of downstream banks (especially regionals) has become one of credit intermediation and distribution. Many banks are operating in a manner akin to an agency or quasi-agency role, and so distribution becomes key. In this context, having a single bank platform becomes more than a nice to have. Voice trading is not sustainable as a standalone option and involves high overheads to remain compliant with current regulation.
Are Single Dealer Platforms (SDP) outdated in today’s sophisticated electronic trading environment?
It is true that basic single dealer platforms do not offer customers a comprehensive solution and so can look dated. However, a well-built SDP that allows customers to view current market rates and execute according to their requirements is still seen as essential.
The ability to offer full STP for both the bank and customer, for the customer to be able to place orders and execute trades, to review the orders and trades and for both to be able to run reports and to demonstrate best execution by way of example, brings efficiencies and eliminates errors.
SDP’s still retain a degree of value insofar as being a ‘One Stop Shop’ for a bank to offer clients their products and services. However, increasingly these platforms are deemed not enough to retain the loyalty of their customer base due to their inability to rapidly change to their customer’s demands.
What are the key decisions a bank must decide when choosing a single dealer platform or multi-bank platform approach?
Banks should look for a common platform that will suit the needs of both its execution desk and sales desk’s and ultimately satisfy regulators. Starting with the ability to aggregate prices from a variety of sources, workflows need to be designed to serve both external and internal customers alongside the ability to handle margins/mark-ups in a consistent, compliant manner, allowing execution methods suitable to the individual customer.
This can still include voice execution, therefore a robust sales desk solution is a must as is connectivity to multi-bank platforms for those customers who prefer that approach. According to recent trends, banks have decided an ownership structure based around three solutions: -
- Single-bank platforms focused on proprietary technology
- Multi-bank platforms focused on shared technology
- A hybrid of the two solutions above
Integration is key so as advantage can be made of real-time capabilities such as real-time limit checks, balance checks or AML screening. Tools such as chat facilities so that the sales team and the customer can work together on the same platform benefit certain trades, especially those with some complexity.
Do FX electronic trading systems need to adapt to support post-trade processing?
There has been an increased focus for e-trading solutions to deliver full trade lifecycle functionality. This can be achieved by implementing an integrated and componentised solution, or driven by API’s, allowing communication to downstream applications.
Building real-time connectivity to settlement and payment systems has enormous benefits when it comes to a combined offering.
Is a cloud deployment a realistic option for a bank?
When considering a cloud deployment, a bank must think about its target markets and security policies. Many banks have a desire to deploy cloud-based technology especially if you have a complex IT estate, the cloud can seem like a panacea.
Banks of all sizes are looking to benefit from the increased resilience of the cloud; Barclays has built its own private cloud and are now moving to a public cloud hosted by AWS.
Before making a move, however, consider your latency requirements carefully; it would be unwise to expose API’s and GUI’s from the cloud that could be exploited by Algo’s because your rate/price streams cannot keep up.
What do you see as the main points to consider for a bank / financial institution when investing in an electronic trading solution?
Often compared to the mobile experience offered to retail customers, the SDP comes second in its mobile capabilities. Banks need to be able to provide a similarly rich experience to the front office customers as they do elsewhere.
In a similar way as new market entrants have brought new payment experiences, customers banks need to bring the capital markets division and the commercial division together and offer products such as an ePayments platform, especially when customers need to make cross border payments.
Below we summarise a few of the key points a bank should consider: -
- Choose solutions that embrace both current and known future regulatory requirements, are real-time at their core and open in their architecture, allowing for easy integration.
- Recognise that ever-evolving workflows are the ‘new normal’ joining treasury, sales, back office and risk & compliance, incorporating solutions that embrace all of these functions.
- Insist that data is no longer only accessible by the solution provider; it should not be stored in a structure that only the vendor can understand. Data should be easy to access, interpret, use or replicate as required by the organisation using it.
- Plan for the future: Select solutions that support market-recognised data standards and API’s, are modular and flexible, giving you control and options as to which complementary solutions are integrated.