As an international bank with a growing global footprint, RBC is now a legitimate competitor to the tier 1 US banks for FX business.
This status is the result of a consistent electronic trading strategy and a forward-thinking approach that has positioned RBC not just as a major player now but one with a sustainable business that will scale into the future.
Kevin Love, Global Co-Head of eFX Trading Products at RBC Capital Markets refers to an ‘electronic mindset’ that gives the bank an edge over competitors that have historically depended on manual processes.
“When I was brought on board the first objective was to develop a robust core pricing framework that would underpin the business,” he explains. “How we view it internally is akin to a hub and spoke model with our eFX pricing engine sitting at the center.”
RBC has an extensive distribution network across its retail, commercial, institutional and wealth management businesses which has grown further on the back of assets that have been purchased over time. To ensure that it is making the most of this broader franchise, RBC has done a great deal of work to remove any internal roadblocks to creating a single vision for its FX business and achieve the economies of scale this network affords as one of the largest banks in the world.
“By centralising execution, we have been able to minimise transaction costs,” says Love. “We have internally improved the liquidity that is available to us and in turn have been able to improve the liquidity that is available to our clients. We have also built extensive external connectivity to the major exchanges via our distribution network to meet clients where they trade.”
Whether clients are looking for principal risk transfer, long-dated forwards or agency algorithms, the bank is confident it can deliver.
Technology build
RBC’s technology strategy approach is based on a combination of build and buy, which has enabled it to develop strong internal IP and more scalable solutions than would otherwise have been available.
This provides greater flexibility when it comes to client interaction through the provision of bespoke solutions and reduced time to market.
One of the bank’s most significant technology projects came with its acquisition of HSBC Bank Canada when it successfully executed the largest and most complex technology transition in its history.
While RBC’s scale and technical capabilities positioned it well, it still had to navigate the complexity of integrating data from numerous HSBC Canada systems and accurately transforming and mapping it to RBC’s platforms.
A dedicated integration team of more than 4000 employees from across the enterprise – including 2000 technology professionals – worked on all aspects of the integration, including process and technology.
A thorough technical migration blueprint was developed that covered every aspect of product, data and system integration, as well as system enhancements and readiness.
This massive conversion involved integrating and developing technological capabilities for some of RBC’s most critical and complex systems across the enterprise. Infrastructure was reviewed to ensure sufficient processing, storage, networking capacity and equipment was available for the conversion of almost 800,000 clients, over 2 million accounts and in excess of 4000 new employees.
Teams were prepared for every step with extensive business and technical dry runs, dress rehearsals and readiness activities which helped significantly in early problem detection and solutions.
“In 2021 there was an initiative to leverage the technology and resources from the equities business and apply them to FX, from liquidity provision to back-end customisation, which has become one of the key differentiators of our algorithmic offering,” explains Won Kim, Head of e-FX sales at RBC Capital Markets.
Client partnerships
RBC’s focus on deep partnership and co-creation allows clients to bring their strategies to life, something which is particularly valuable for those with sophisticated and specific preferences around the liquidity venues they want to access.
“As we go through this transformation, we want to make sure that we have the analytics and the insights to power client engagement and appropriate business decisions,” says Love. “Data capture enables sales and trading to provide more accurate pricing and increase our competitiveness as well as be more proactive in how we engage with clients.”
With upgrades in client analytics, sales can be more proactive in helping clients manage their risk across forwards and options, making the conversation around position management more robust.
“We are showing thought leadership by engaging with clients proactively and flagging decisions they might not have realised they had to make,” says Love. “They really appreciate this approach and also our recognition that not all clients are the same.”
Corporates are largely driven by hedging decisions and how they are able to smooth their cash flows, manage financial reporting and make sure they are not making losses on FX, he adds. “Our risk solutions group are having those conversations with the mindset that these corporates and their goals are different to those of institutional investors who are generally a bit more sophisticated.”
These clients are generally measured against certain benchmarks to make sure that they have achieved best execution and are therefore focused on slippage and execution costs.
To address concerns around workflows, RBC has built special tools that enable the institutional sales team to make sure they are catering to those clients in the best possible way
Optimising workflows
To address concerns around workflows, RBC has built special tools that enable the institutional sales team to make sure they are catering to those clients in the best possible way. A similar approach is taken on the commercial or retail sales desk where there is more focus on making payments and reducing friction in terms of how they are managing balances in their accounts.
“We are able to cater to those needs by building bespoke tools for our sales desk and those clients,” adds Love. “It is not a one size fits all approach and as we go down this path of electronification, we are making sure that what it important to each client is the primary consideration.”
Given RBC’s size relative to the bulge bracket banks, there has always been an acknowledgement of the need to be nimble and scale more efficiently. Part of that process has involved breaking down internal silos to enable teams to do more with less.
“In the electronic world we have adopted a cross-asset ability, building something once and utilising it across multiple business lines,” observes Kim
This is highlighted by the Multi Asset Agency Solutions (MAAS) team within Global Markets which focuses on leveraging technology across all asset classes. A large part of this team is the multi asset trading analytics which is live across equities, futures, and FX with clients in beta stage or internal testing. This analytics suite gives clients both pre-trade and real time feedback on how assets are performing, relative to their benchmarks and early feedback suggests it is creating a point of differentiation for RBC as one of very few banks with this type of functionality.
“Another area where we are introducing greater efficiency is by having our MAAS team use their cross-asset expertise to build foundational algos,and having our salespeople be more macro,”says Kim.
“There is a lot of cross- selling internally because we partner with our wider Global Markets teams, so we are in constant dialogue with our equity sales colleagues on our mutual client names and how we can cross-sell rates or FX and vice versa.”
RBC has already had a lot of success in cross-selling. “A lot of banks talk about cross-selling initiatives but we have turned this into reality consistently, which is important,” adds Kim.
Intelligent approach
RBC is a market leader in AI research and innovation fueled by it’s pioneering investment in RBC Borealis and more recently through creation of the AI and Digital Innovations Team. The Capital Markets-based team’s mandate is to lead the development of the end-to-end AI and digital innovation strategy across Capital Markets, partnering across lines of business, Technology , Borealis and the broader enterprise to deliver tangible client, commercial and measurable outcomes. Executive level support has been key to creating awareness and momentum around such initiatives as its propriety ATOM (asynchronous temporal model) foundation model for financial services enabling the bank to leverage unique insights and develop innovative solutions within a responsible AI framework for financial services.
Created by RBC’s research institute, RBC Borealis, ATOM was securely trained using large scale financial datasets including billions of client financial transactions, providing it with a unique breadth of knowledge in financial services.
ATOM is part of RBC’s Lumina data platform, which systematically collects and curates event data along all business lines and enables AI scientists to process up to 10 billion transactions per minute. As a foundation model, it has deep financial expertise that can be used across a variety of banking tasks. Several RBC products and services currently use ATOM’s capabilities.
ATOM will play a central role in RBC’s ambition to achieve between $700 million and $1 billion in enterprise value from AI-driven benefits by 2027 through several AI products and services across all lines of business and takes place in a responsible AI framework that meets regulatory requirements and ensures the data never leaves RBC control.
RBC’s reputation as a leader in this transformative technology enabled the bank to leverage its data scale and position it to leverage AI’s potential in financial services. First used in 2023, ATOM has been deployed safely in several products and services to create an individualised product and client experience, thereby better meeting client needs with a tailored approach.
RBC Capital Markets has also worked with RBC Borealis to develop an AI-powered electronic trading platform with the goal of delivering improved execution quality and client insights. Known as Aiden, it uses deep reinforcement learning to learn from its experiences in the market and adjust to changing trading conditions in real-time.
RBC’s use of traditional AI and machine learning techniques in its pricing engine is vital to maintaining competitiveness in FX markets. “This gives us a great deal of confidence in our risk management approach,” says Love. “We work closely with RBC Borealis to develop and refine this signaling and we are now looking to expand it so we can leverage the internal IP we have built to inform our equity or rates trading.”
Spot success
Electronic FX is often the first touch point for clients engaging with RBC. Spot trades present a much lower barrier to entry in terms of onboarding requirements and the bank’s competitiveness in this market enables it to build relationships and eventually cross-sell less liquid, high touch products that offer more value from a revenue perspective.
“We need to make sure we are positioned to make the most of these opportunities,” says Love. “So while we have a made a significant investment in our core FX stack, we have also been going down the liquidity chain and product set to make sure we are able to offer the whole universe of products to our clients.”
Options
Options is one of the areas where RBC has increased its capabilities. The bank has always had a large Canadian options business but in recent years has focused on increasing the number of markets it competes in, which has been successful in terms of the number of currencies covered but also the range of products available.
“We identified a number of product areas where there was a client need and have been able to fill that gap,” says Love. “We have also expanded our overall currency offering to make sure that we are effectively a one-stop-shop for client needs.”
Clients can now trade in around 50 currency pairs and RBC plans to increase this number so it can facilitate payments for an even wider range of commercial and retail clients.
Reimagining Cash Management
In April 2024, RBC Capital Markets launched RBC Clear, a cash management solution for Fortune 1000 corporations in the US that allows corporate treasurers to gain traceability and transparency of transaction lifecycles in near real time.
The platform offers a number of unique features, including streamlined onboarding through the use of existing client information and an onboarding tracker; near real-time status on payments; optionality on how clients want to be updated on transactions through a digital-first solution; and actionable data insights to ease day to day management and reporting.
One key rollout for the platform for the end of 2025 is FX capabilities, designed with the same ethos of putting clients in control of their working capital.
“This demonstrates our commitment to the US market and the growing scale of our business,” says Kim. “RBC Clear not only supports the cash management needs of these corporates – in the future, it will also make sure that they have access to all the functionality they need from an FX perspective.”
Integrated strategy
The platform is yet another example of how the different pillars of RBC are able to operate seamlessly to leverage economies of scale and build out liquidity and operational efficiency.
While RBC is now firmly established as one of the leading international banks for FX and other asset classes, it continues to benefit from its Canadian heritage and specifically the perception of Canadian institutions as being transparent with their clients.
“This reputation is well deserved and we strive every day to maintain it by ensuring that we do the right thing by our clients,” says Love. “It is a major reason for our success and really comes to the fore during periods of market stress. When markets are volatile and liquidity dries up, clients know they can rely on us to support their business.”