Citi and JPMorgan have been named as the two leading banks for FX trading and FX services - and investment in people and platforms is what differentiates the leading FX banks from their competitors, according to global analysis and rankings from Greenwich Associates. The financial advisory firm compiled the global FX rankings based on interviews with 2,355 users of foreign exchange, using the data to rank FX providers according to their market share and quality of service provided.
Citi and JPMorgan took the top two spots for both share and quality of service, with both financial clients and corporates. Their competitors UBS and Deutsche Bank tied in third place, while Goldman Sachs, HSBC and Bank of America Merrill Lynch share fifth place.
Right people, right platforms
Analysis from the report suggests that banks took advantage of the period of low volatility in 2017 to invest in their FX platforms. It stated: “In retrospect, perhaps that extended period of frustratingly slow market activity was just the breather banks needed to get their FX desks prepped and ready for the sudden reappearance of volatility in February 2018.” It added that the two leading FX banks were able to use their “extensive global networks and best-in-class technology platforms to build a lead over the rest of the market that is wide and still growing”. Greenwich Associates' James Borger commented: “2017 was a year that saw several banks make strategic investments in FX, particularly in e-trading, to prepare for the expected rebound in the business.”
And Greenwich's consultant Satnam Sohal emphasises the importance for banks of having both strong e-trading capabilities as well as a skilled trading team. Part of this trend is also the adoption of algorithmic trading capabilities. Sohal said: “Some banks have the right people, but not the right technology. A strong technology platform helps free up sales traders, who can then spend less time on operational issues and more time with clients.”
MiFID II's ripples
The report also noted that MiFID II is causing ripples in the FX industry. The report said that: “FX clients place a significant value on the ideas and market colour provided by their sell-side coverage. However, as clients move to comply with new MiFID II rules on research, some market participants—primarily in Europe—are imposing strict restrictions on sell-side firms and their own traders. In short, if you don’t have a research contract in place with these firms, you are prohibited from even speaking with them. No calls, no unsolicited emails—nothing.” This is causing complications for corporates that are used to relying on the research from their FX traders but Greenwich's Frank Feenstra expects this situation to be resolved in the next 12 months: “There will be some disruption this year, but this will subside as the industry comes up with a structure and pricing level that works for both sides.”
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