I think I can say with confidence that 2020 has been the strangest year in my career to date. The FX markets have faced their share of global crises and geopolitical disruptions over the decades, yet nothing comes close to the impact of COVID.
Digital transformation is happening across every sector, and banks in particular are beginning to recognize a digital framework that allows their services to be accessed from anywhere will be key going forward.
The importance of relationships in FX has proved central to institutional trading in recent months. Not that relationship trading ever went away in the FX markets. However, in a clear ‘Back to the Future’ development, the role of the single dealer platform (SDP) is once again having a resurgence.
As pubs and restaurants begin to open their doors in England, so too are the world’s global banking giants. After a prolonged period of working from home, many of the top banks such as HSBC and Goldman Sachs have announced plans to urgently bring workers across the world back into the office.
The question is: Why the rush?
As novel COVID-19 has swept the globe, financial institutions can still remain focussed on trying to operate business as usual and serve their clients. No doubt this continuity can be achieved largely in part with access to the right technology.
It is true that banks are having to do more, with less budget. Recent headlines have demonstrated we’re currently operating in an increasing cost pressured environment. The solution for some banks has been cost cuts through staff reductions – but is this always the right answer?
With increasing popularity to outsource FX technology at banks, Vikas Srivastava, Chief Revenue Officer at Integral, gets to the core of the matter and explores how to outsource the notoriously complex risk management technology stack.
Integral recently spoke on a Greenwich Associates Webinar discussing the key technology criteria an FX desk at a bank needs to compete. It came as no surprise that during an interactive polling session with the audience, senior representatives from regional banks cited risk management was the hardest component of the FX technology stack to outsource.
On the surface, the news that BCBS and IOSCO have granted an extension to the final phase of the Uncleared Margin Rules (UMR) is likely to be welcomed by asset managers currently trading uncleared derivatives with a notional between $8 billion and $50 billion.
The extension pushes the initial margin compliance date out by exactly one year to September 2021 for an estimated 8000 firms. However, this additional year does not apply to the 1000+ firms that have a notional threshold between $50 billion and $750 billion. And to be honest, the truth is that much elbow grease is still needed in the coming months to prepare for what is essentially a major structural change, regardless of whether an asset manager falls under Phase 5 or Phase 6.
This week’s news about Alpari partnering with Integral highlights a larger trend: Margin FX brokers are choosing Integral as their business solutions provider. The combination of access to liquidity, rapid time to market, no upfront costs, the flexibility to pursue the business model of their choice and the assurance to have all key elements under their control is hard to beat.
As a neutral technology provider that offers a fully managed end-to-end solution, Integral offers a unique value proposition that resonates with our customers.
It’s a technology arms race
Global foreign exchange markets have become a very competitive business and in it managing a margin FX brokerage is no exception. Therefore, having the right partner at your side is extremely important.
We invested in technology solutions complete with a network of liquidity providing banks, ready today and available for margin FX brokers to build their own private FX exchange, and to deliver branded trading services to their retail customers.
The power of cloud computing
All our services are delivered in the cloud, offering the advantages of this business model such as dramatic cost savings through a shared technology platform, on demand services that scale elastically in line with our customers’ business needs, and a pay-as-you-go business model.
Since we don’t charge any up-front costs, we only get paid a small token every time one of our customers executes a trade. This is very different from the traditional purchase-and-install software model and ensures that the interest of both Integral and its customers are aligned.
We work with margin FX brokers to assist them in assembling their own liquidity from multiple banks. If those banks are already on Integral’s FX Grid® – and many are, then established connections are in place. Connecting once to Integral is all that it takes to be ready for connecting to other participants. In the rare event that a connection doesn’t exist yet, Integral will research the particulars of that situation and even build it on behalf of our customers.
As importantly, we will ensure that these connections continue to stay up and working. We’ll track the many changes that the liquidity providing banks make on their end and ensure that service to our customers is not interrupted. It all contributes to the high availability of our trading network.
You are in control
Our various cloud services add up to an end-to-end solution that includes everything FX brokers require to run their own business. Since it is delivered a la carte and not as a fixed bundle, brokers can pick and choose. They end up with everything they need and nothing they don’t. That includes the option to take advantage of FX Inside Professional™, our execution management system (EMS) for the broker’s professional customers.
Since nobody knows their business better than they themselves, we offer our broker customers real-time analysis and administrative tools so that they are in full control of their FX business. That way, they can customize solutions that specifically fit the needs of their various customers.
A new reality
The time of one-size-fits-all solutions in FX is over. FX market participants demand a technology solution that fits their business, not the other way around. They further require the tools that put them in control of their FX business. Integral understands and supports this trend. Our rapid customer growth is testament to the fact that what we offer resonates with the market.
The Olympic Spirit is alive in FX Markets. There are more than just a few similarities between what is happening in London and developments in global FX markets. Consider a few key characteristics and draw your own conclusion.
Reason #10: Foul play can lead to disqualification
London 2012: A Swiss and a Greek athlete sent home for racist tweets, other athletes leaving suddenly due to ‘illness’ that is rumored to be linked to doping
FX Markets: Google CFTC and enforcement or go here: http://www.cftc.gov/LawRegulation/Enforcement/EnforcementActions/index.htm
Reason #9: Audience participation
London 2012: In many venues, many seats are empty and emergency measures are in place to fill them
FX Markets: Semi-annual survey data for FX spot shows that here also, volumes are down in double-digit numbers in key arenas