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we are relatively late has some advantages – the fact that technology has moved on to a point where it is easier, faster, more reliable to deliver enhanced functionalities at a lower cost to our clients, and the fact that the requirements are better understood means that our time to market with a product suite that delivers in a high impact way, is shorter.” But with regard to mobile technology, Garwood says that at present the bank’s customers are more concerned about accessing research content ‘on the move’ than trading functionality, something that may change over time and so the bank is already looking at future developments in this area in line with client requirements.
Flexible pricing frameworks
Core to its e-FX program is the pricing engine powering Arena as a bilateral execution pricing platform and allowing the bank to extend the Arena service to multilateral trading venues. Garwood says that in order to truly service clients across the different segments, there is a need to be able to engage with them in the venue of their choice. “Tis means deploying a core pricing engine that is not only fast, but that the bank can quickly adapt to changing market conditions and changing client requirements. We went with a pricing framework build that offered us (and our clients) that flexibility,” he adds.
Arena is regarded by the bank as a tool to strengthen its customer relationships. Garwood says the service offering is about combining online and offline services. He says: “Some customers need a reliable platform to execute transactions and Arena will deliver that. But we have also included proprietary risk analytical tools, cash flow analysis and cross products tools, which we feel will improve our customers ability to understand and manage their financial exposures. Additionally, we are fully resourced to enhance our platforms to provide further bespoke analysis tools developed by our Risk Solutions team.”
Arena is launching as an FX and money markets platform and the bank is planning to add liquidity, rates and further transactional banking products over the next couple of years. “Tis is clearly an exciting project for Lloyds and a key development for our clients and the services we deliver to them,” Garwood says.
84 | october 2011 e-FOREX
He adds that the bank keeps a close eye on the changing regulatory landscape and the impact it may have on how and why customers use FX, to help customers understand and navigate the new environment. Garwood says regulations such as Derivatives on Exchange, MiFID, Basel III and Solvency II will impact the bank’s client segments in different ways and it has been updating them, in these key areas, on a continuous basis.
Client fragmentation
Tomas Soede, global head of electronic commerce at BNP Paribas in London, says the bank has identified four different client segments using its FX single bank platform: institutional clients, including real money managers and hedge fund clients; large corporate and multi-national companies; small and medium-sized companies; and the private bank market. All of which have different reasons for accessing the FX market through BNP Paribas and, Soede says, different pre-trade, trade and post-trade services and level of service needed. Soede said: “Client fragmentation offers banks like BNP Paribas an opportunity. Te only shared item is that they want to do everything/everywhere electronically.”
He says: “We also believe that those clients that see FX as an asset class or FX as a utility have to be incorporated into product bundles, for example, for the SMEs, FX has to be included as part of a wider package that caters for their requirements on lending, cash management, trade finance and letters of credit, as for this client segment FX is
not a standalone product. It is for a large hedge fund or large corporate looking to hedge exposures to emerging market currencies, but not for the wider client base.”
Te client profile differs again for private banks, which tend to be heavy users of structured products. Soede says that in a typical private bank product portfolio, 70 per cent will be equity-linked, 30 per cent will be fixed income-linked, and FX will play a role in 20-30 per cent of the fixed income part of a typical private bank investor, or high net-worth individual. He says: “Te next challenge for global players in the electronic market, trading FX, will be to identify the right bank to partner with, with the best fit, and the right expertise, manpower, research and development for the specific client segment needed.”
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