The close relationship between BBH's Investor Services and Foreign Exchange teams was instrumental to the development of FX WorldView, FX IndexLink and FX OrderView. These eFX solutions are only a segment of BBH's WorldView suite of e-products, including Bids WorldView, Fund WorldView and ActionView, designed to address the unique business needs of the firm's global investor clients. Building a relevant and beneficial eFX solution, one which helps global investors reduce errors, minimize pain points and effectively manage risk requires a complete understanding of the range of operational issues that our clients face from trade inception to settlement and reporting. Being able to draw upon our strong working relationship with our global custody team and our collective expertise is not only necessary, but has also contributed to an environment wherein a traditional custodial FX provider such as BBH continues to be an innovative force in today's FX market.
In the past, a classic chicken-and-egg problem has confronted online FX. Institutional Investors waiting for online platforms with sufficient liquidity, were at the same time, required themselves to drive the trading volumes to create that liquidity. Are we still facing this dilemma?
In the early days of e-trading we saw reluctance on behalf of our clients to trade over an electronic platform, hence the aforementioned liquidity problem. As the benefits of these systems became more apparent, we have increasingly seen this initial reluctance disappear and liquidity increase. For many of our clients, part of their hesitation stemmed from the fear they would lose contact with their relationship managers and forego the personal service that they provide. However, our experience has shown the opposite to be true, as we have more interaction with our clients because of online FX. We are more effective in delivering crucial market information that our clients require to make informed investment choices while they reap the benefits of increased efficiencies garnered from the ability to execute transactions online and pass trade details electronically.
The growth of e-trading tools has made it easier for investors to ensure they are getting Ã¢â‚¬Å“best executionÃ¢â‚¬Â. Do you think the sell-side is experiencing increased pressure from clients as a result of this new technology?
Without question, the advent of e-trading has increased price transparency within the FX market as global investors increasingly bid FX providers against each other. At BBH FX, we have always understood that a competitive price is paramount, but we also realize that it is not the only variable in the equation. Best FX execution, in reality, depends on the best overall product offering, which includes strength of research and advice, easiest channel for exchanging information, competitive executions, timely and accurate settlements, and reporting. BBH's expertise in these areas is the result of our consistent focus and dedication to the global investor. Satisfaction comes down to outstanding customer service, the understanding of the global investor's requirements and the ability of an experienced relationship manager to help manage the entire process.
How much of a threat, in terms of competition from other banks, do you think the arrival of electronic trading, poses to traditional custodian banks?
We don't view the rise of electronic trading as a threat but rather as an opportunity to improve the level of service we provide to our existing FX relationships and we have been able to leverage these eFX offerings to develop new relationships, further expanding our market share. BBH has positioned itself in the market as a specialist solutions provider. Our proprietary online offerings have been designed in partnership with our global investor clients to create solutions that are most relevant to addressing their needs. Numerous surveys and our clients' feedback have confirmed our ability to deliver highly competitive rates, flawless execution, outstanding research and relevant advice. How the trade is delivered to us makes no difference as long as it best meets our clients' needs. We welcome additional opportunities to compete for global investors' business.
BBH has been making a great deal of effort to assist clients to cut FX-related costs. With price discovery a commodity nowadays, how important is the reduction of operational Ã¢â‚¬Å“pain pointsÃ¢â‚¬Â and administrative costs, in persuading clients to adopt eFX?
Cost cutting has become a critical mission for global investors over the last few years as they seek ways to minimize administrative costs, streamline the foreign exchange process and leverage their resources more effectively. Even as markets recover from the recent slowdown, we expect this trend to continue. Global investors have realized the importance of adopting eFX to provide them with valuable operational efficiencies and the ability to cut costs. BBH's approach has been to not only develop an execution engine, but also to look long and hard at all of the operational intricacies associated with FX. By partnering with our global investor clients, we have been able to build efficient FX solutions that are customizable to fit their specific needs.
Some argue, that for asset managers, the real value-added benefits of eFX lie in STP. Particularly for pre and post-trade functionality? Do you agree?
A valuable area where eFX can assist asset managers is in streamlining their FX process, allowing them to re-direct resources to other valued added tasks. Automated aggregation and allocation are available through BBH's eFX trading products and are important tools to help achieve desired operational efficiencies.
A manual process comes with increased risk of errors and time sensitivity, whereas seamless pre- and post-trade integration enable clients to eliminate manual processing thereby reducing risks in the investment process. STP can provide backward and forward integration linking the client's system to the providers, making transmission of trade details real-time and less error prone.
Last year BBH significantly upgraded FX WorldView, your web-based currency trading service to include two-way pricing, real-time streaming rates and an aggregation facility. Recently you placed a new version of FX IndexLink, on-line. What has been the client feedback on these new eFX offerings?
Our clients have responded favorably to the enhancements to FX WorldView and the online version of FX IndexLink. They are particularly attracted to the aggregation facility of FX WorldView, whereby clients can monitor positions across all currencies in real time, improving their ability to manage risk. Clients have also been impressed with the flexibility of FX IndexLink, with its user provisioning capability and real time trade status display, this new version addresses client's unique needs and preferences, providing them with more control over their FX execution process. We consider all of our proprietary solutions as continual works in progress as we consistently work with clients to enhance our online services.
Increasing numbers of investment managers are now considering currency as an asset class in itself, which can contribute to overall performance. This is fertilizing significant interest in the benefits of eFX. Do you see this interest as a continuing trend?
In the past, currency transactions were seen as an adjunct function of security trades but with a challenging investment environment, we see a shift of focus to currencies. In addition to cost containment, global investors are also seeking ways to increase the bottom lines by looking for the Ã¢â‚¬Å“alphaÃ¢â‚¬Â that informed currency decisions can provide to a portfolio rather than just hedging away risk. Generally, this change in attitude may be a trend that waxes and wanes along with the rise and fall of equity markets. Nevertheless, the treatment of currencies as an asset class poses significant interest in the integrated eFX environment as the need for currency research, liquidity, price transparency, increased risk controls and real-time reporting continues.
Recent surveys suggest increasing numbers of investors concentrating their FX business in a smaller number of providers. New technology can only accelerate this process. With this in mind, do you think FX will remain a growth business for most banks?
Over the past year we have seen a substantial increase in trading volumes from global investors, as confidence comes back to the markets after the lull we experienced in 2001 and 2002. As a result, we have continued to work with our clients to offer operational solutions as well as exceptional service and competitive execution, which has lead us to expand our footprint in this segment of the market. That said, banks have always run the risk of potentially losing market share if they don't correctly identify and address their clients' needs effectively. Foreign exchange will remain a growth business for those providers who offer a quality service and are attuned to addressing their clients' ever evolving demands. Since BBH FX's unique relationship structure and its position as a market leader in global custody enables us to fully understand our client's business and provide them with an exceptional, comprehensive and competitive FX service, we believe FX will continue to be a growth business for BBH.