Ian O'Flaherty Managing Director, Global Head of e-Commerce, Foreign Exchange, Deutsche Bank.
Ian O'Flaherty Managing Director, Global Head of e-Commerce, Foreign Exchange, Deutsche Bank.

With Ian O'Flaherty, Managing Director, Global Head of e-Commerce, Foreign Exchange, Deutsche Bank.

First Published: e-Forex Magazine 26 / e-Forex Interview / January, 2007

Ian, you recently remarked that foreign exchange remains a relationship based service industry. Do you think the arrival of more aggressive trading styles and black-box systems might ultimately change that widely held opinion?

I think it may change the landscape a little, but I still believe that a large proportion of our clients would like to retain a strong relationship with DB. Some of our clients only demand direct access to the markets through Prime Brokerage. Some demand liquidity, some demand superior front-to-back services. Others require all of the aforementioned. It is our challenge to understand their needs and meet their requirements. I do not see these dynamics changing in the near future. We connect to clients and provide liquidity where the relationship is mutually beneficial. The key is being able to perform all aspects well. We have shown in the past that we are market leaders in provision of liquidity, market access and front-to-bank services, we will always endeavour to retain such high standards in the future.

The arrival of program trading operations and prop shops in FX has presented banks with difficult issues surrounding customers not delivering margin. Deutsche Bank is known to be ahead of much of the industry in your Risk Management techniques for dealing with these and discerning client from counterparty. How important has it become for banks to know who they are pricing to and down which channels?

Program trading and high frequency models have certainly presented the banks with some issues. Taking time to understand the modus operandi of these new players to the FX market is important, and creating smart algorithms to risk manage is key in extracting value, but again it needs to be beneficial for both parties. I believe it is important for us to know who we are pricing because we need to ensure we provide the correct level of liquidity, the correct spreads and the correct level of pre and post trade service that is prevalent for the relationship. If the client is anonymous we cannot adjust the level of service accordingly. With regard to the channels that we price through, the same principle holds. Anonymous, multi bank portals will naturally receive different liquidity and resources versus autobahnFX and our API. Any channel that allows us to enhance our client relationship will receive greater attention than those that do not.

The FX market continues to experience a proliferation of trading venues and marketplaces. What impact do you think this fragmentation may have on overall market liquidity and what makes you optimistic for the future prospects of single bank portals?

The term “fragmentation of liquidity” gives the impression of inefficiency, but a concentration of liquidity is a double-edged sword. Some would prefer that all liquidity was accessible in one venue, an exchange. But, if FX moves towards being an exchange traded product the nature of the client relationship would have to change. The current model would be unsustainable. Most clients are happy with the overall structure of the FX market, and I do not believe the market place as a whole is ready or willing to embrace such a fundamental change. On the other hand, fragmented liquidity does cause other issues. Having many avenues and labyrinths of liquidity does make the overall market look more liquid than it really is, and is what I deem to be the oft mentioned “liquidity mirage”. Market makers do not always see the end user, and the end users quite often see the same liquidity but duplicated. The market makers find it very difficult to control their liquidity across venues, thus the client sees a liquidity mirage. This is why we put most of our efforts towards our bi-lateral relationships, autobahnFX , our API or any venue that enhances our client relationships and allows us greater control of our liquidity, and why two-way support pricing into anonymous portals and some software applications is unsustainable long term.

The centrally-cleared FX trading platform, FXMarketSpace, is launching in early 2007 and Deutsche Bank has signed up to its Early Adopter Programme. What makes the FXMarketSpace business model attractive from your point of view?

Deutsche Bank has only signed up to be a credit provider in the EAP and not a liquidity provider. As Head of an e-FX business dedicated to improving direct client relationships, I do not see the FXMarketSpace as an attractive business model. That does not mean it may not succeed.

Deutsche Bank has recently launched a new version of your proprietary platform, autobahnFX. Can you tell us a little about some of the enhancements you have made and important new functionality added?

Some of our clients demand a premium cross product platform and with this in mind we have combined many other products from our autobahn platforms including Futures and Options, Interest rate Swaps and Money Market Derivatives. We have added many new products to our platform including, more Indices and Baskets, streaming Asian and LATAM NDFs. We have increased the breadth of EM currencies and our offering in Options has been enhanced with greater liquidity being shown, more currencies, more exotics structures and small ticket quotes available. We are also launching EFP pricing for outrights and rolls that allows our clients to deal on autobahnFX and give up to one of a number of exchanges. We have also improved our post trade functionality and now clients can allocate or split trades across accounts. We believe these enhancements will help us to further entrench Deutsche Bank’s relationship with its clients.

Your new Laddered Pricing solution seems a particularly exciting and useful feature. How are clients responding to it?

The response to Laddered Pricing from clients has been extremely positive. They construct their ladders and trade via the rungs, this allows them to pre select the amounts they want to deal, removing the need to type in trade size , thus speeding up execution client side.

Earlier this year Deutsche Bank announced the launch of dbFX - an online margin foreign exchange service made available primarily to an individual client base with customer support in 9 languages. In what ways do you think the entry of a mainstream bank to the online margin industry will benefit all participants?

The market for online FX trading is growing significantly as all clients demand streamlined access to capital market products. We believe that the entry of a mainstream bank to the online margin industry will benefit all participants by deepening the use of FX as an asset class, and establishing best practice. We offer individual investors the opportunity to deal with Deutsche Bank, and place all deposits with Deutsche Bank.

Deutsche Bank has recently been doing a great deal of work to enhance your electronic options capabilities, including doubling the number of currency pairs priced on autobahnFX and increasing the choice of pricing parameters. Do you see your option trading offerings as being a major differentiator between you and competitors?

Deutsche Bank now offers a comprehensive range of products within its e-Options platform, which have been designed to meet the needs of all types of user. Streaming 2-way prices enable clients to view and trade the whole volatility surface at the click of a button. For clients that want to trade specific vanilla options there is the RFQ window that delivers 2-way tradable prices in a multitude of strategies and price type (volatility, pips, premium). Meanwhile, the Option Pricer is the ultimate product for flexibility, providing clients with tradable prices for a full range of exotic options and multi leg structures which can include both vanillas and exotics.

There is much debate about exciting new growth areas for e-FX. What impact might significantly increased foreign exchange trading activity amongst investors such as real money managers and pension funds have on the future provision of FX e-commerce services?

We have built our business on a solid scaleable base and we would welcome increased trading activity. We have the pricing, risk management and settlement systems that can handle more tickets, more volumes and more clients. We want to attract more clients and see more trades; we have the capacity to remain the market leader. Real Money and Pension Fund managers require different services to our other clients. These demands are in execution and settlement so we take time to listen to our clients, understand their needs and will always endeavour to meet those needs in a timely manner and to a high standard.

Deutsche Bank continues to win many awards for foreign exchange. Looking ahead, what do you see as the main challenges facing you in maintaining your position as a leading innovator in e-FX?

Being voted No.1 by your clients is a truly rewarding experience. But the battle only starts there. Everyone wants to take that spot and they raise their game. We have to continue to raise the bar ourselves and it is key that we listen to our clients, meet their needs and continue to be innovative and forward thinking to ensure that Deutsche Bank and its clients stay ahead of the game. Predicting a need is far harder than reacting to one, but that is the definition of innovation. It is clear that e-FX is a fluid landscape, forever changing and we strive to ensure our business model is also fluid to ensure we meet the demands of an ever more competitive market. I predict challenging but exciting times for all participants in the FX market.