Takis, you joined CIBC in 2009. Did your career before that mostly revolve around FX and the e-trading business areas?
I started my career in finance working as a valuation and risk analyst on equity derivatives interest rate swaps and convertible bonds in London.
Following that, I joined an FX options desk as a quantitative analyst supporting the FX options business, working closely with the forwards and short term interest rate desks to create executable FX forward curves for publishing onto a pioneering e-commerce platform. I later worked on automated pricing and hedging algorithms for the spot component of client flows.
Through exposure to multiple asset classes and different styles of interactions between clients, sales and trading, I saw the promise of e-trading in capital markets, and the importance of empowering clients to access liquidity directly for commoditized products, such as FX, which provides the benefit of straight through processing.
What do your day-to-day activities and responsibilities usually involve?
I’m primarily focused on our e-commerce client strategy and execution. This entails meeting with clients, managing vendors, collaborating with internal technology and infrastructure partners, as well as our sales and trading desks to identify the right solutions for our clients. We employ a variety of real time tools and customized reports, enabling us to monitor volumes, hit-miss ratios on client requests and hedging and execution efficiency. This information is important in developing new pricing and hedging algorithms to cater to the diverse needs of our clients.
What types of clients does the CIBC e-Commerce Solutions Group mainly cater for?
Our e-commerce team works closely with our sales and trading desks globally to provide advice and solutions using front ends, algorithmic trading, hedging strategies and risk management to clients accessing capital markets. Clients range from small and medium enterprises in Canada that use our FXOnline @CIBC single dealer FX payments platform, to large corporates, asset managers, pension funds, banks and other institutional clients globally that access our liquidity via our PowerPlay @ CIBC single-dealer FX platform, or via multi-dealer platforms.
Our Applications Programming Interface (API) capabilities enable institutional clients to auto-hedge the FX exposure of cross border equity trading, while also meeting the FX needs of clients with CIBC’s Retail & Business Banking and Wealth Management businesses. PowerPlay @ CIBC is also used by our FX sales people to trade on behalf of all client segments with straight through processing into the book of record, and internal non-FX trading desks to hedge exposure.
What’s driving the development of CIBC’s digital strategy and the evolution of your electronic FX proposition? Is it mainly client demand or competitive pressure?
The market is characterized by intense competition, product commoditization and growing client sophistication. We are focused on innovation and continually evolving our products, services and support to help our clients keep pace with market developments.
Identifying the right value proposition for different customer segments, and focusing on developing products with the right attributes that are best suited to our clients’ needs is foundational to our e-trading business. We are focused on delivering relevant products to our clients to help them manage exposures more efficiently, and provide them with multiple points to access our liquidity. Client relationships are deepening as a result.
You have said in the past that CIBC focuses on a strong dual channel approach when servicing the needs of customers. Does that mean helping clients to leverage the benefits of e-trading on the one hand whilst strengthening your overall relationships with them via other means of communication?
In capital markets, commoditized products are increasingly being traded over single dealer and multi dealer platforms. Less liquid or more complex products, such as options and structured notes, require a closer engagement between the sales people, and clients in order to understand the requirements, identify associated risks and discuss possible structures and transactions for mitigating those risks. In a world where most of the client FX transactions are executed by electronic means, the role of the sales person is even more important to provide value added service to the clients and strengthen the overall relationship.
This is not unlike retail banking, where most people prefer to open up a bank account in person, but after that, are happy to use online services to review statements, transfer money between accounts and pay bills. Yet, when it comes to applying for a mortgage or a line of credit, they prefer to speak to a person at the bank.
In what ways does CIBC utilise FX e-services to help streamline the key operational parts of your clients’ businesses?
Our single dealer platforms empower business banking and corporate clients to perform daily tasks easily, with flexible and customizable online solutions. For example, email alerts for outstanding settlement instructions allow clients to create customized reports of their transactions which can be exported to a file and kept for auditing purposes. Clients can set up their own settlement limits, pre-trade credit and balance checks, and restrict payment methods for safe delegation of work.
Our pension funds clients, endowment funds and asset managers, who seek a more transparent and operationally efficient means of executing FX, benefit from the advantages of our straight through processing capabilities and associated services.
This includes risk management, netting services, settling and documenting executed FX trades according to pre-set requirements, automatically confirming transactions with details reported to investment accounting systems, and reconciling discrepancies with minimal effort.
Corporates are one of the most important client segments for all leading FX providers. What e-FX functionality are they particularly looking for from your group and do they, for example, tend to value online payment services more than advanced trade execution capabilities or is this more directly related to their size and type of commercial activities?
Corporate clients expect transactions to be processed seamlessly, with a high degree of automation and low frequency of errors. The operational side of supporting the business is extremely important for them, followed closely by accessing sufficient liquidity to execute their transactions in a timely manner.
Large corporates that have credit relationships with other banks as well tend to access our liquidity more over multi-dealer platforms and rely on those platforms for post-trade payment functionality. Small and medium enterprises in particular, but corporates in general, that have business banking accounts with CIBC, have a range of online customized solutions available to them with straight through processing, settlement, reporting and auditing capabilities.
On the trading side, they have the ability to execute spot, forwards, even and uneven swaps, and time options (open dated forwards) with full or partial drawdown capabilities.
Depending on needs and sophistication, clients have the flexibility to use our platforms to see indicative rates in over two hundred currency pairs and request a quote at the time of execution, or see fully streaming prices updated multiple times per second.
Corporate clients also use our online platform to separate duties in terms of trading and settlement to suit their internal processes, to split a single FX trade into multiple payments, to provide online settlement instructions for account deposit, wires and drafts, approve multiple payments at once, and use historical trade and payment queries for accounting and tax reporting purposes.
Given the wide variety of CIBC’s client base how hard has it been to formulate digital and e-commerce solutions that can meet all of their diverse needs and how have you and your team gone about achieving this?
We continue to invest in people and technology, and collaborate very effectively with internal stakeholders in the front office and infrastructure groups in on-boarding, legal, risk management and operational matters.
We recognized early that the development of a pricing and hedging engine is “table stakes” for pricing large corporate and institutional clients, and precedes any development of APIs, Single Dealer Platforms or connectivity to Multi-Dealer Platforms. We also view payment and settlement capabilities with the appropriate client-facing front ends as essential for small business and mid-market corporates, which can be done in parallel.
CIBC was the first Canadian bank to co-locate FX e-trading infrastructure in data centres that also house the matching engines of ECNs or high speed cross-connects to multi-dealer platforms and other banks. Low latency, access to global liquidity and understanding market depth and volatility conditions are key requirements for pricing large notional amounts from corporate or institutional clients, and for providing streaming FX prices to facilitate small but very frequent cross-border and inter-listed equity transactions. It is also a key requirement for automatic risk management and hedging, for providing liquidity aggregation solutions to internal spot trading desks, for providing tools to trade on behalf of clients, and for developing the underlying framework to enable client facing algorithmic execution of transactions.
Confidence in pricing, liquidity aggregation and execution, real time credit checking, “kill switches” and other safety checks, routing of trades to trading books with the appropriate decomposition of spot and forward components, is the basis upon which we build API solutions and connect to client facing platforms. As pricing and operational complexity increases, solutions for spot, forwards and swaps are important. Our enhanced functionality for pre- and post-trade allocations, splits, and real time credit checking of parent and sub-accounts enables the pricing of real-money clients over multi-dealer platforms.
In what ways is CIBC assisting clients to meet the challenges of regulatory reform in FX and has it created opportunities for the bank to provide additional value added services for them?
As a large financial institution, subject to increasing reporting, registration and clearing requirements across jurisdictions and asset classes, we are well-educated on the evolving regulatory landscape. We engage clients regularly on the implications for them. Our experience adds value since some boutiques and non-bank liquidity providers are not necessarily subject to the same regulatory capital and reporting requirements.
A recent example that extends to all corporates across small businesses, mid-market and larger institutions is the introduction of Legal Entity Identifiers, which requires clients themselves to register in specific websites and adhere to specific deadlines in order for them to continue trading forwards. We are proactive in informing clients of such impending changes in advance of deadlines, and even guiding them in the steps needed for registration.
What work have you recently been doing to CIBC’s Single Dealer Platform and suite of digital services in order to move them onto the next phase of development?
Recent enhancements include customized and streamlined workflows for investment managers for increased operational transparency, including electronic audit trail capabilities. Dedicated front end screens in PowerPlay @ CIBC were developed to provide real time price discovery and trading access to the FX market. Deploying these solutions to high touch clients to trade directly is also a focus.
Our FXOnline @ CIBC platform has been enhanced to allow corporate clients to create multiple trading templates, print pdf files of transaction details, access new administrative functions including wire template uploads, and save re-curring settlement templates to further simplify the payment process.
Other advances include updates in pricing algorithms, trade acceptance logic and algorithmic execution, which benefit all our streaming clients, as well as straight through processing into various channels.
Some commentators believe that the internationalisation of the Renminbi will be the next big thing in the FX market over the next few years. Do you agree with them and how are you positioning your own business unit to meet growing buyside demand for dealing with the Redback?
RMB will certainly be one of the big themes in both FX and the broader capital markets over the next few years. The internationalization of the RMB has not only played a key role in that development but is also clearly a policy focus going forward. The desire for inclusion in the Special Drawings Rights (SDR), as well as liberalizations of the currency and equity markets, and more recently the change to a more market focused currency fix are all examples of the ongoing process.
As a result we have seen a significant increase in both client interest and market liquidity for the RMB. Since the inception of the offshore CNH market a few years ago, it is now one of the most liquid and highly traded currencies in the world. To meet the needs of our clients, we are delivering a full range of FX products available 24 hours, including spot, forwards, options, NDFs and deposit accounts, and liquidity for RMB, all available over all our e-commerce platforms.
China is Canada’s second largest trading partner and the trend of more client interest and demand for China products is still very much intact. With Canada being the first RMB hub in the western hemisphere, our North and South american clients can deal conveniently in an efficient local market that is familiar and transparent, in their own timezone while centralizing payment activity. Additionally, corporations using RMB for international settlement no longer require FX conversion, resulting in lower costs.
Finally, how do you view the future use of technology in FX? Are you optimistic that the exciting period of rapid innovation in e-FX that the industry went through a few years ago will be repeated as interest in new instruments (possibly cryptocurrencies) modes of communication (mobile trading) and information sharing (social media) gathers pace?
We are optimistic. As new technologies are developed, businesses evolve and use those technologies to create better, faster and cheaper products. Case in point: this was the first year that the majority of FX trading volume was transacted electronically.
Distributed ledger technologies such as blockchain have the potential to streamline the way money flows online, and how transactions are recorded, settled and cleared in a secure way. It can also enable the creation of smart contracts and easier management of syndicated securities, and the digital representation and easy transfer of assets such as stocks, bonds and foreign exchange. This can reduce the costs of doing business for clients.
When the cost of a transaction and asset transference is reduced to a sufficiently low level, we may potentially see an explosion of new products and services ranging from real time settlement and clearing, to new custody services, and even creation of new real time structured products and derivatives across asset classes, with continuously compounded interest being paid in real time. This also creates more opportunities for market making and client offerings.
Undoubtedly, a mobile offering is increasingly becoming a key differentiator for the retail and discount brokerage businesses, and more important for small to medium size corporates. Although there is still some trepidation in using a mobile device to trade large notionals in a click-and-trade manner, such devices are useful for executing smaller trades with multiple steps for reviewing, confirming and authorizing trades, and for reading market research. Our corporate business banking clients are currently benefiting from a dedicated app that enables FX payment transactions to be done over mobile.
Over the last few years, tablets have become fast enough to run single dealer platforms that are written in HTML5 with minor code adjustments. Indeed, our PowerPlay @ CIBC platform was developed with that in mind, further benefiting clients.
Social media trading platforms are more geared towards retail margin trading but continue to grow. There is great promise in using big data technologies to analyze trends hidden in transactions and in social media communications to uncover information such as sentiment, market growth prediction and competitive analysis that clients can use to grow their business and we can use to help manage their risk. As with market research, such information can find its way to single dealer platforms, packaged in interfaces that compliment trading and payment capabilities, empowering our clients further.