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November 2010 / 10 November 2010 / FX-MM
With a passion for first class service and innovation, Alpari is one of the world’s fastest-growing providers of online foreign exchange trading services. Across both retail and institutional segments, Alpari is committed to providing its customers with highly competitive pricing and fast execution through a range of trading instruments and platforms. Building on the group’s impressive growth, Daniel Skowronski, Global Chief Commercial Officer and CEO of Alpari (US) LLC, has ambitious plans for global expansion in 2011. FX-MM Editor, Eleanor Hill, investigates.
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August 2010 / 16 August 2010 / FX-MM
In an era when the spotlight has been brought to bare like never before on the integrity of the financial world, Drew Hillier speaks to Todd Crosland, one of our industry’s preeminent figures in the drive for increased transparency, accountability and excellence. Todd, the founder of Interbank FX – a global leader in online off-exchange retail trading services which he continues to oversee – prioritises his guiding focus on a degree of customer care that sets it apart from many of it competitors, which remains as keen today as it did when he started the company a decade ago.
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May 2010 / 12 May 2010 / FX-MM
Online Forex Broker Tadawul FX, (TDFX) is a leading Swiss and European online forex and commodity Broker focused on providing premium brokerage services via its MetaTrader 4 trading system. TDFX was founded in 2006 by its multi-lingual CEO, Ramzi Chamat, originally from Lebanon, who grew up in Switzerland. Speaking to FX&MM editor Drew Hillier, Ramzi – having taken time out prior to flying out on a business trip to Eastern Europe – shares his vision, business ethos and thoughts for the future.
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April 2009, Past issues / 30 April 2009 / FX-MM
Throughout human history, tough times have had the effect of throwing up a rethink or two. Right now, the global economic firestorm has reignited people’s natural instinct of trying to make sense of a situation which seems to catapult received orthodoxies into a state of quandary. With the financial crisis impacting on all our lives, understanding economics is, to put it mildly, pretty topical!
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January/February 2009 / 9 February 2009 / FX-MM
Drew Hillier in conversation with Will Hutton.
Will Hutton is one of the most keenly sought out and listened to political and economic commentators of the current age. Now occupying the role of Executive Vice Chair of The Work Foundation, Hutton’s stellar career began in the nineteen eighties as a stockbroker and investment analyst, before working his way up the hierarchy of BBC TV and radio. He then spent four years as editor in chief of the Observer, for which he continues to write a weekly column – winning the prestigious Political Journalist of the Year award in 1993 – and now juggles his time between constant media appearances, a day job heading up the Work Foundation, and writing several best selling economic books, including the best selling The State We’re In.
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September 2008 / 22 September 2008 / Drew Hillier
With most of the developed world’s financial system in a pickle, FX&MM finds out from one of the UK’s most respected and knowledgeable observers of the global markets, Sir Howard Davies – former deputy governor of the Bank of England and the FSA’s founding head (1997 – 2003) – if the rules governing the markets and their custodians are in dire need of an overhaul.
Now in the role of Director of the London School of Economics, apart from his regulatory credentials, including stints as Director General of the CBI and Controller of the Audit Commission, Sir Howard Davies worked for McKinsey & Company in London when, between 1985-1986, he was seconded to the Treasury as Special Adviser to the Chancellor of the Exchequer. Alongside his many City interests, Sir Howard, a youthful and energetic 57 year-old, has also received wider recognition for his literary interests, (his own book “The Chancellors’ Tales” was published in 2006); last year, he was appointed chair of the Man Booker Prize judging panel. Even this had its moments of controversy for Davies – never one to shy away from expressing his views – or indeed worrying about demonstrating an independence of mind sometimes perceived as biting the hand that feeds him. He used the black tie prize-giving ceremony to launch a dig at the gathered literary movers and shakers, whom he berated for their failure to maintain a healthy distance between themselves and the Booker Prize reviewers, many of the latter of whom, said Sir Howard, ‘adopt a reverential tone for books that barely deserve a review, let alone recommendation.’
Therefore, with straight talking in mind, I kicked off by putting it to Sir Howard when we met recently – which coincided with the breaking news of Fanny Mae and Freddie Mac – that with his regulatory credentials, did he agree that the UK should be jolly thankful we do not to have such arcane and potentially dodgy set-ups here?
“Yes! This is a very American crisis. These institutions go back seventy years or so to President Roosevelt in the context of the New Deal as a way of stimulating the US housing market. They were then privatised in 1968 by Lyndon Johnson as a way of getting the asset off the books, related at the time to an expenditure boom due to the Vietnam war. So in fact, this is a crisis – a time-bomb if you like – that has been ticking away; it’s been drawn to the attention of the American public and international financiers alike in the past how these are potentially very unstable institutions indeed, which, so far, they’ve not been prepared to anything about, And now it’s about time they did.”
This could potentially signal a really significant banking crisis; between them Fanny and Freddie provide the fuel for the US mortgage market to the tune of five-trillion dollars – or about twice the size of the entire UK economy. Do you think there’ll be any implications beyond the United States?
“Well, technically, there should not be. Other countries do not operate this kind of animal. On the other hand, it of course can be seen as a further sign of failing confidence, both in the property markets in the United States and the financial markets. So I can’t think this will be anything other than negative for sentiments elsewhere – even though there is no logical link.”
Sir Howard Davies, We’ve also just witnessed this Indymac business, with the Fed effectively stepping in to avoid the collapse of the bank’s five-trillion dollars-worth of mortgages they own or guarantee – or about twenty-five times the size of the balance sheet of Northern Rock! That’s a pretty serious event too, which has been overshadowed rather by Fanny Mae and Freddie Mac.
“Certainly, and I’m afraid when you talk to people on Wall Street, they expect there will be further casualties to come. Already there are some American regional banks that look over-exposed to the continuing property market downturn – so that I think we have certainly not reached the end of the corporate crises, which now of course sets the Northern Rock problem in some sort of better context I think.”
With all this in mind, Sir Howard – and if we can all agree the western world has been through a decade of unprecedented prosperity and growth – how come right in the middle of the boom we discover some of our biggest financial institutions are in such turmoil?
“Well, part of the answer to that Drew is we don’t really, yet, understand the business cycle. But there is something called the business cycle; economies expand, people become more optimistic, asset prices rise – which people think will continue – bubbles inflate and then bang! That’s what we have had. And nobody, frankly, not even psychologists, really understand the true dynamics of it.”
That makes it sound almost as naturally occurring as the seasons.
“Yes, because it more or less is. The business cycle is well known; it goes around so that we can observe and describe and analyse each cycle, but as for asking me why the cycle happens, well that’s a very difficult and rather philosophical question. But what we’ve seen, certainly ahead of this current situation, was a massive expansion of credit, fuelled by ‘free’ liquidity created by central banks with low interest rates and considerable surpluses building up in the Gulf and the Far East, which resulted in too much money chasing too few assets. This, in turn, caused an inflation running through the price of those assets – whether subprime houses in the United States, or commercial property and mortgage-backed securities – coupled with the narrowing of risk spreads, so people were investing in things and not getting an adequate return for the level of risk they were taking. And then at a certain point, for reasons which – as I alluded to just now – are still quite hard to get your head round, the whole mechanism triggered and went into reverse. House prices in the States started to come off and that created a crisis of confidence.”
But that’s sort of my point. When you say ‘the whole mechanism started to go into reverse’, this, surely, indicates that the system itself is fundamentally flawed?
“Mmnn, whether fundamentally flawed, I’m not sure. I don’t think that. But with respect Drew, if you put the question in a slightly different way, and say ‘could we have done anything to prevent this crisis?’, then I would probably have to reply that we can’t do anything to prevent the business cycle; it’s a natural phenomenon – as you described it earlier, like the seasons – of people becoming optimistic and then at some point becoming slightly disappointed. But could we have dampened this down, or have stepped in to avoid it becoming so serious… preventing the collapse and creating collateral damage all over the world? I think yes, we could have done.”
Sure. But it strikes me very uncomfortably – and I say uncomfortably because, as a journalist working in the financial markets, it was staring us in the face every day – that the rules didn’t work. I’ve referred to it many times as a sort of ‘Emperor’s New Clothes’ syndrome; had the rules worked, and worked well, surely many of these problems we’ve seen, such as Northern Rock, Bear Stearns and other, very major, financial institutions would not have happened?
“I know what you’re getting at, but it really depends on what you mean by rules. I honestly don’t think that people in most cases ‘broke rules’.”
No, and that’s perhaps the problem: it’s rather that the rules didn’t work.
“Exactly. There are certain areas where you have to break this crisis down, if you like, into its component parts. First area, subprime mortgages in the United States: mortgage brokers selling houses by giving people loans five, six or more times their income; even the infamous Ninja loans – no income no job no assets. Nonetheless, people lent upon such a basis simply because they assumed house prices always rise. All of that clearly needs much tighter regulation. Mortgage broking is regulated in Europe – it’s not in the United States; the Fed now accepts that it must be. That’s one clear area where we need a new regime.”
OK. Moving on, by looking back, as it were. To your credit, reading some of your speeches when, in 2002, you were heading up the FSA, you suggested that there were real concerns about some of these incredibly complex financial instruments, such as CDOs for example – collateralized debt obligations – which I think are a form of packaged debt. I see you said at the time how ‘one investment banker had told me that CDOs are the most toxic element in the financial markets today.’ And you went on to remark how ‘when a regulator hears that sort of thing, he’s bound to take a heightened interest.’ Well, that was 2002. It sounds like you knew there was something dodgy going on, so what happened since to regulate these things?
“Ha, what a question; I’d love to give your readers a half-hour lecture on collateralized debt obligations! If only we had the time…”
I’m not sure they’d love it quite as much!
“Perhaps not. Look, what I identified back then was the fact that these mortgage packages were bundled together and sliced and diced: relatively low risk tranches which you sell to one sort of person, and high risk tranches you sell to another sort of person. What I was focussing on in 2002 was the fact that these high risk tranches at the bottom – what I dubbed as ‘toxic waste’, and I’m afraid that tag has lived with me ever since – were being sold to people who didn’t understand the dynamics of it. In actual fact, we in the FSA did go round the market at that time and looked where these were going. We identified what we called naïve capital, that’s to say people who were buying these tranches without understanding precisely the risks involved, and we made some changes. There were certainly many insurance companies who had their eyes opened.”
I just wonder if you and other major players acknowledge there was an awful lot of Emperor’s New Clothes-ism around; not just in the financial institutions themselves, but a general lack of rigour in the regulatory authorities?
“From about 2005, it can be seen that risk spreads – that’s the additional income you earn by taking on highly risky assets – began to compress. You then find the Bank of England and the FSA saying, ‘excuse me, people are not being rewarded for the additional risk they’re taking on by taking on these loans’, and that’s when the thing started to get dangerous. So, what should the institutions have done about that? Well, some people say they should’ve increased interest rates; but inflation was low. It would, I think, have been difficult to explain why the Federal Reserve or Bank of England was increasing interest rates when inflation was below two percent. Possibly, and I think this is a more interesting argument, the regulator should at that point have stepped in and said, we can’t say that inflation’s the risk, but we can see these banks taking on more and more highly risky assets and not getting paid enough for them. Therefore, we should increase the amount of reserve – the amount of capital – they should keep on their balance sheets in case some of these loans go wrong. That’s where the argument is currently taking place among regulators and central banks, and I think there’s quite a case for saying they should’ve tried to lean into the wind of this bubble by requiring the banks to hold more reserves – which of course they’re now having to get, but somewhat after the event.”
That’s very well when dealing with, say, a ‘local’ scenario. But increasingly, the financial institutions are truly globalised, taking in and paying out money internationally, and on an extremely fast turnaround. So if regulators, as you say, are having to – in a sense – restore traditional values and make sure banks have plenty of liquidity, how do you make rules that will apply across the board?
“Well, there is of course a mechanism for doing just that. The Basel Committee, which groups together the supervisors from the main western countries…”
But that’s hardly global. What, only thirteen countries isn’t it – ten of which are European, and only one of which is in Asia, the planet’s next economic superpower.
“Yes, it’s hopeless. I have argued as much in a recent book, where I say the Basel Committee – and a number of these other agencies – need to be reformed to take account of the realities of today’s global financial markets. It’s a bit like the Security Council problem, where they don’t have Brazil or Russia or India, and nobody from Africa, yet it’s a body that’s supposed to rule the world! We have that problem in financial markets too. But I would just like to say, it’s right that we have to have global rules, but, just consider these few, small numbers: house prices, in real terms, went up in the States by sixty-five percent over the last decade; in the UK, one-hundred-and-five percent; Spain, hundred-and-eighty percent; Germany, minus fifteen percent. So, clearly, the rules that you might set if you wanted to try and catch an asset price bubble – and get the banks to hold more capital in case house prices fall – would be very different in Spain than in German, even though they share the same currency. So it’s quite difficult to set international rules on a completely standardised basis given that the situation in different countries is very different.”
I’d like now Sir Howard, if we may, to think about something that impacts very negatively with ordinary people in the street. That is to say, the mindset we see in many of the global financial sector’s giants where something seems profoundly askew with banks paying their top people tens of millions of dollars even when they are patently underperforming and losing their shareholders’ money?
“The whole question of pay relativity is a very difficult one, though in my view Drew, it’s the shareholders who should be the ones taking responsibility here. After all, they are the people whose money it is being paid out, rather than being paid in dividends to them. I do believe we have quite a reasonable system here in the UK, whereby it is necessary for votes to be cast by the shareholders on proposals by a company’s remuneration committee on executive pay. There’s no such provision in the United States, where we know executive pay is considerably higher in relation to ordinary pay, than it is here.”
But whether it’s the UK or U.S., I’m thinking here about the analysis of risk, which seems pretty skewed in a sector where if you lose money by, say, taking financial gambles which don’t pay off, you don’t see the consequences in your remuneration, which to many onlookers seems to tilt the balance between endeavour and risk out of kilter?
“But Drew, if I may say so, that just isn’t true. If, for example, you look at the investment banks whose shares are now trading about forty-to-fifty percent of what they were doing just a year ago, their executives are paid in shares. And they’re required to hold those shares, or certainly at least seventy-five percent of those shares, certainly by the typical rule, for about five years. So the net worth of the people in such institutions who oversaw this disaster has halved over the last twelve months; I call that loosing.”
Sorry Sir Howard, just taking two examples: the boss of Northern Rock – who presided over a complete meltdown of his own institution – walked away with a seven-hundred-and-fifty-thousand pound pay-off and a nice fat pension. The head of RBS, who oversaw the value of his company nose-dive, and who supervised the takeover of ABN Amro at the height of the market, which most expert observers are in agreement was totally ill-advised, got out with a cool four-million.
“Well, yes, I think people at the top of these institutions should be paid in the form of shares which they should be required to hold for a considerable period. That way, you capture this problem which you quite reasonably highlight. I agree with you that when people are paid large sums of money in cash pay-offs to walk away from the car crash they created, that is bad. I would not remotely defend that. But I do think it’s important to reiterate that many top players in quite a few of the big investment banks are paid in shares, and they have lost a huge amount of money.”
Turning to the real economy. At the beginning of this year, you caused a bit of a stir when you said, emphatically as I recall – and indeed, FX&MM reported your comments at the time – that you thought there was no chance of the United States avoiding a recession. You also remarked that you didn’t see much chance of the UK avoiding one either. Is that a sentiment you’re sticking with?
“Yes, I do. Though the figures are pretty difficult to read at the moment, because we’ve still got consumer spending rising, but I continue to feel that a house price fall on the scale we’re witnessing in the United States – and indeed in the United Kingdom – is likely to feed through into very slow growth, or actually to a recession in the course of the next twelve months. This, principally, is because consumers have been financing their spending by taking equity out of their houses – to the tune of something like ten percent in the UK – which is no longer possible. So I can’t help but think that this will grind to a halt and the economy will slow as a result. However, I’m not one of those super-pessimists looking for a long, long recession, but I do think it will be hard for us to escape a recession of some kind given what’s happened in housing.”
What many people are saying is we’re seeing an unwinding of a massive structural imbalance; wherein the Western World we’ve borrowed too much money for too long, too easily, so that to coin a phrase, chickens are coming home to roost. Do you agree, therefore – given that’s a reasonable assessment I just gave – that the era of easy credit is, effectively, over?
“For the moment it certainly is. And if I could Drew, I’d like to broaden this out a bit, in that there has been a major imbalance in the world between –and forgive if I simplify this somewhat – China and the U.S., with the UK somewhere hanging off the coat-tails, as we often are! Where the Chinese have been running a massive trade surplus, while the Americans have been running an equally massive trade deficit, where Western consumers have been spending all their incomes, indeed to the point where the savings ratio has even been negative at times, it could not possibly continue. In the end, something has to give… in this case the US dollar, which has fallen partly in order to correct this imbalance. But crucially, we also need to see those savings ratios coming back to something like a more normal level, both in the U.S., and the UK, and probably also come down from the exaggerated levels in China. In America we see savings level as zero, whereas in China it’s forty percent. Somewhere in between the two would be a happier medium!”
Final question Sir Howard: do you think the era of ‘easy money’ is over for ever?
“Not for ever, but it is for the moment. Indeed, at the moment, de-leveraging the reduction of credit is going on in a rather dramatic and severe way – and that’s our worry.”
June/July 2008 / 12 June 2008 / Drew Hillier
Drew Hillier talks to George Soros about the Credit Crisis of 2008 and beyond.
The billionaire investment guru and hedge fund manager, George Soros, has a remarkable reputation, and – in many minds – a controversial one, for positioning himself on the right side in a crisis. No greater was this sentiment exemplified, and certainly no more firmly welded inexorably into the public consciousness, than on the infamous Black Wednesday of 1992, when Soros was said to have broken the Bank of England – reportedly borrowing sterling to the tune of £6.5bn, converting it into a mixture of deutschmarks and French francs before unwinding his positions, paying back his original borrowings and walking away with a healthy profit of around £1bn. Since those heady days, Soros has gone on to become not just one of the planet’s wealthiest individuals, (just last year his $17 billion investment fund grew by thirty-four per cent by betting that the credit crunch was more serious than most people expected) but also one of its leading liberal-leaning philanthropists and commentators.
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September 2007 / 13 September 2007 / FX-MM
As head of Transaction Banking for ABN AMRO, Ann Cairns is responsible for the global business unit that provides cash, trade and supply chain and card products and services to multinational corporations, commercial and consumer clients, as well as to other financial institutions. Ann, who is based in London, joined ABN AMRO in 2002 and was instrumental in developing the bank’s Working Capital business, a precursor to the current Transaction Banking. ABN AMRO operates in more than 50 countries worldwide. (more…)
May 2007 / 16 May 2007 / Drew Hillier
With daily trading volumes now running at approximately $2.3 trillion, foreign exchange has become the largest and most-liquid market in the world. Indeed, according to a recent study carried out by leading financial services market research company, ClientKnowledge, global FX volumes are projected to grow to above $3 trillion per day by 2010, with electronic foreign exchange trading also expected to double over the same period to more than $2 trillion per day. (more…)
April 2007 / 4 April 2007 / Drew Hillier
Following hard on the heels of a meteoric 2006, which included the acquisition of treasury and cash management specialist Trema, Wall Street Systems – who emerged clear winners in the TMI 2006 Awards for Best Treasury Workstation Providers of Cash and Workflow Capital management System, and best ASP Solution – has just announced ambitious growth plans for 2007, encompassing a major recruitment drive, the relocation of both its USA and European headquarters, significant R&D investment to the tune of 25% of revenue, and the launch of an active graduate recruitment programme. (more…)
March 2007 / 12 March 2007 / Drew Hillier
I spoke recently with Richard Estes in The Bank of New York’s London office on the 41st floor of Canada Square, overlooking the ‘mini-Manhattan’ of Canary Wharf and City financial districts to the distant Kent hills. More used to the equally expansive New York vista of real Manhattan skyscrapers, where he is based, Richard makes it across the pond regularly to keep an eye on things in the UK. In discussing the general theme of the enhancement of managing client relationships in the context of e-trading, it became clear that for The Bank of New York, and indeed Richard personally, a progressive attitude is a fundamental principal.
Since its founding in 1784, The Bank of New York – America’s oldest bank – has consistently been a prominent player in the evolution and innovation of financial markets worldwide. This continues to be the case, and as such, can be no better evidenced by the launch in February this year of the bank’s new version of iConfirm, a web-based trading system that automates confirmation processes for foreign exchange trades.
It was, in fact, The Bank of New York – a global leader in treasury management services – that pioneered e-commerce when, in early 1999 it rolled out an online trade execution system, iFX Manager, and positioned itself at the cutting edge of web-based trading. As Richard is eager to point out: “To give some background, The Bank of New York was one of the first major banks to offer internet-based trading for clients. Our approach was a lot more radical than most of our competitors, some of whom at the time were offering bank-to-client trading systems based largely on installing software in the client’s location with very limited functionality, more akin to what I would call typical dealing systems where there’d be a price and you’d click to see if you wanted to buy or sell something. In contrast, our approach was more revolutionary. The Bank of New York, as a major custodian, has a significant amount of foreign exchange business around servicing the investment manager client base. So the strategy we adopted many years ago was to try and automate the whole foreign exchange trading process for investment managers, not simply provide dealable prices. Because of our knowledge and experience servicing investment managers, we know they are not always just trading for one account; rather they’re often trading for dozens of accounts simultaneously, and then allocating those trades. So The Bank of New York designed software in the late 1990’s that would automate the whole trade execution workflow, so when you did a trade with an investment manager, instead of agreeing on a price and then getting a fax afterwards for the allocations, we actually created a straight through processing solution that would allow the investment manager to present the allocations within a block trade that could be priced at once, thus allowing each account to receive the identical FX price.”
That was certainly somewhat revolutionary and ground-breaking for the market at that time.
“Yes, it was. And being that iFX Manager was internet-based, it made it very easy to deploy and very scalable. In fact, the design behind iFX Manager ended up being adopted by FXall as part of a licensing arrangement we extended to the fledgling multi-bank portal, and became the nucleus for the initial FXall trading platform launched in 2001.
“Since that time, there’s been a significant on-going evolution of online trading platforms based on different dealing models: single-bank systems, multi-bank portals that look to intermediate trading between clients and banks, and alternative trading systems that look to break down the rules behind who is a client and who is a liquidity provider. Examples of the latter include Hotspot FX, Lava FX and the reinvention of Currenex, all of which try to mimic the dealing style of interbank brokers EBS and Reuters Matching.”
And of course, there’s further evolution underway this year with the anticipated launch of FX MarketSpace, which I guess looks set to change the whole dealing landscape where you’re no longer a client or a bank, you’re just trading on equal footing. Not based on who your credit line’s with, but where everything’s collateral-based and everyone trades on the same footing; a true generational shift.
“Correct. So the market has seen many different models of trading develop and evolve electronically over the years; but they all don’t perform the same service, which is why there continues to be a heterogeneous product offering in the marketplace. While we execute significant volumes via the multi-bank portals, the activity on our single-bank system, iFX Manager, still predominates. Overall, there has been a radical shift in how we execute client trades from 10 years ago, when all client trading was telephone-based. Now, I’d say probably at least 8 out of every 10 transactions that we do with clients are priced through a screen.”
Do you believe the point will come when e-trade volumes reach anywhere near 100%?
“I don’t think we’ll ever get there, no, because some clients are simply more comfortable with the telephone experience. Having said that, those clients who had moved to online trading are now looking for their banks to extend the automation process beyond just trade execution to include post-trade services such as trade confirmation, netting, and settlement. This is where iConfirm comes into play. Via iConfirm we are trying to automate many of the back-office functions which traditionally have been handled via phone or fax, namely generation of confirmations for client review and affirmation, netting of offsetting trades, transmission of settlement instructions, and mark-to-market of outstanding trade positions. Essentially, we are striving to provide the same level of automation online around post-trade services that we have achieved for trade execution.
“The original iConfirm system, which we launched in 2005, was our first attempt to provide online confirmation delivery to a significant part of our client base that was not SWIFT-enabled. These clients have normally received confirmations in hard copy via mail or fax, and were expected to sign and return them timely. However, given the transaction volume of investment managers, this operational model is not efficient. iConfirm improves upon the operational process by delivering trade confirmations on a same-day basis, moments after a trade’s been booked. The first version, while effective as an electronic delivery tool, however did not take into account many of the nuances around how clients manage confirmation processing and trade settlement.”
So the new version of iConfirm which you’ve launched recently has been designed very much as an evolutionary process in mind, which as I understand it, has been achieved in collaboration with The Bank of New York’s clients?
“Absolutely. We went to clients, and with their input redesigned the user interface to improve the presentation of information. We developed workflow changes to take into account how clients actually work with confirmations – for example, re-engineering the process for clients who want to process multiple confirmations simultaneously. Effectively we were able to streamline the processing of confirmations while making trade settlement instruction more efficient, all while improving screen design and overall system navigation. We also took on-board client suggestions that we’re planning to incorporate in future versions of the software, such as performing payment netting online. In addition, we plan to extend the product coverage to include derivatives confirmation and valuation.
“So in general, the forward-thinking approach that we at The Bank of New York have taken is based on the acknowledgment that the move toward electronic trading and automated trade processing is something that is here to stay. It’s also crucial to understand there’s no one single way of executing trades, or of managing the confirmation and settlement process. Thus it’s incumbent upon a major FX provider to offer both proprietary tools for these services, and also support those used by clients on the multi-bank portals. In the end, servicing clients in foreign exchange is no longer built around simply executing trades. Rather, clients are expecting more from their banks, including reporting and supporting best execution to satisfy initiatives such as MiFID. There’s growing demand of clients from their providers not only to automate the business, but also to provide information on what business has been done, how it’s been handled and that it’s been done in the best possible manner. All this is a growing area of services that every bank is being asked to provide, and one where The Bank of New York is a global leader in enhancing the client-bank relationship.”
The Bank of New York’s Global Markets Division encompa .sses the bank’s foreign currency exchange, interest rate and equity risk management businesses, including global trading, currency overlay and sales activities. Additional information about The Bank of New York’s full range of offerings, including iConfirm, can be found at: www.bankofny.com
February 2007 / 5 February 2007 / Drew Hillier
Marilyn H. Spearing joined Deutsche Bank in June 2006 on a stellar 25-year career path featuring highly successful tenures in a number of senior positions with both HSBC and Barclays. With a remit covering cash management and trade finance within Deutsche Bank’s Global Transaction Banking area, Marilyn, who works out of London and Frankfurt, also currently serves on the Board of SWIFT.
When talking to Marilyn recently for FX&MM, I began by congratulating her on to the news that Deutsche Bank has just been announced as having ranked number one in the highly respected Treasury Strategies poll of top transaction services providers, where Deutsche Bank outperformed its nearest competitor by an impressive margin.
“Thank you Drew, we’re delighted about that. Within the payments, cash management and trade world, we’re certainly positioning ourselves to retain our market standing, which we’ve worked very hard to achieve, so we’re very pleased how the market has responded with voting us into the top spot. This is particularly gratifying bearing in mind the heavy focus on Europe – our home market – where we have directed a huge amount of attention. We were an early adopter in the euro-world, and have a highly coordinated SEPA strategy . This includes the extension of our product range to the new SEPA instruments. We decided early on to demonstrate our commitment to SEPA.”
I wondered how Marilyn – one of the most experienced and respected industry authorities – viewed the SEPA landscape going forward?
“I think SEPA’s going to be a bit of a watershed for some of the domestically-orientated players within cash and trade in Europe. Deutsche Bank wanted to make it very clear within the market that we are fully committed to the transaction banking scene; maintaining investment levels and moving forward to lead post-SEPA. We’ve had Christian Westerhaus, our key product expert, on-board the European Payments Council since it began and, of course, I was personally involved in the EPC in its early days. We think SEPA and the accession countries present an exciting opportunity, but it’s not our only opportunity. That is why we’re pushing out in the Americas with a very strong platform which has its legacy within our Bankers Trust acquisition. In fact, we have a very broad base of corporate banking and financial clients using us in the US for cash management, both domestically as well as in Europe.”
And also in Asia, of course, which I guess as a region represents considerably more than just an outpost for Deutsche Bank.
“Absolutely. We maintain a continued push in Asia, showing well in our rankings at a strong number four. This, without doubt, is a position which we would seek to retain across the fourteen counties in which we operate for cash, trade and capital market sales, growing as it has done in its percentage contribution to the overall business. And what we are seeing – like many of the Asian markets – is high double-digit growth year-on-year in revenues, which gives an indication as to the dynamics of that market.’’
Would this level of growth be something you expect to see continuing, in that there’s nothing to suggest an impending slow down in the foreseeable future?
“Certainly the economies in those markets will not be slowing down. Furthermore, with our own investments increasing, we see the region as a significant future growth point.’’
And in terms of other geographical areas, where do you foresee significant transaction banking growth?
“Well, and admittedly like many of our competitors, we’re definitely focused heavily on growth within our core markets, and are putting extra investment into emerging markets – including the BRIC countries, but also Poland, Turkey and Eastern Europe generally – all of which represent large, important markets for us as we seek to push out. In this regard, we’ve been using our innovative trade capabilities to really lead the way in leveraging what we can do in Russia and Brazil.’’
Returning to SEPA – after all, it’s increasingly in everyone’s minds now – could you expand a little more on the reasoning behind Deutsche Bank’s investment in this area?
“Drew, it continues to be very much the view that this is a very strong market. Euro transaction volumes continue to grow and, generally – as was reported the other day – the euro has passed the dollar in value of bonds issued. There is a lot of opportunity which, in terms of volume, is starting to rival the US market.
‘’However, Europe is still plagued with in-country and domestic participants. There are over four-hundred banks offering some type of a payment, cash management or trade service. We believe that the investment needed to continue to do that consistently across all of the markets that make up the new Europe as it evolves with the accession countries, will certainly cause the current players to re-evaluate their positions to the point where they will have to seek consolidation with other banks. Therefore, our own SEPA positioning at Deutsche is very much focused towards addressing the question not only of how we handle the needs of our own corporate clients, but also how we provide services to the banks that will no longer want, or indeed be able, to stay competitive across the twenty-seven countries of Europe as it expands. We believe banks will be making the decision that while they could stay competitive within a two- to three-country zone, they will become uncompetitive if they are processing transactions for only a small percentage of the enlarged SEPA world. So it is absolutely critical for Deutsche Bank to continue the investment to retain our dominance. We are the lead euro clearer in the payments world as well as a very significant force within the market infrastructure, so therefore we felt it would be natural to continue that lead.”
So Marilyn, in summing up, could you encapsulate your thoughts as to how the markets will develop for this year and beyond?
“Overall, whereas Deutsche Bank has been reliant on our SEPA strength for global position, the goal now is to operate in a much stronger way for all of our pitches, extending Deutsche Bank’s strong capabilities across a much broader geographical front.”
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