Foreign exchange trading businesses at sell-side institutions are experiencing a ‘golden age’ in comparison to equities and fixed income, as banks continue to adapt to the buy-side’s needs in terms of new product development.
Speaking at this year’s TradeTech FX Europe conference, panelists from major investment banks agreed that in this new age, developing new products and technologies on behalf of clients is not the same process as it used to be. Diminished resources also means that the sell-side can no longer build ‘anything and everything’ for the buy-side, as was once the case.
“We are living in interesting times as banks pull out of equities and fixed income,” said David Wilkins, head of global eFX sales at Goldman Sachs. “But that’s not the case for FX where we are seeing a golden age on the sell-side. The mentality and mindset around how we develop products, and the way our clients use those products, is changing.
“Across the industry, we have limited technology spend, so we can’t just endlessly build everything for clients and hope they will use it. We need to take a more consultative approach as to how we build, and listen to clients. Any client I speak to in any part of the world is trying to automate their business in some kind of sense, but the days of ‘here is our spec, come and integrate with us’, are over. Now, it’s about how we can integrate with them using open architecture and systems.”
Joe Nash, FX and local markets digital COO at BNP Paribas, which launched the latest version of its Cortex LIVE FX trading platform at the event, agreed with Wilkins, adding that the pressures facing the buy-side are also being felt on the sell-side. Cost savings are now being driven by integrating operating systems, as opposed to spread pressures.
“The days of developing a product and seeing what sticks with clients are over. We don’t have the resources on the sell-side either,” Nash said. “We need to target the limited resources we have to help clients automate the workflow for cost efficiencies. It’s the next-generation of tools as the industry moves from manual processes to automated processes.”
Wilkins from Goldman Sachs continued that challenges for the sell-side with innovating and delivering new solutions to clients occur when the individual buy-side firms seek similar, but differentiated products, meaning banks have to adapt to satisfy those requirements.
“The buy-side must be aware of this,” Wilkins said. “It can be infuriating for us when a client changes their execution management system or order management system every two years, and we need to work hard and do our homework to work with them again. It’s a challenge for us, but the buy-side need to be aware that there is a big risk with switching systems often.”
Other new methods on the sell-side to innovate for clients, according to the panel, include partnering with and presenting FinTech firms that could help with certain challenges on the buy-side. The global head of eFICC product and distribution at Barclays, Mauricio Sada-Paz, told delegates that the innovation incubator is a good method to do this.
“When I meet heads of trading on the buy-side, they are often worried about what the market is going to look like down the road,” Sada-Paz said. “There are FinTech firms moving into the industry to solve major challenges, but the buy-side simply don’t have the time to meet every single one.
“Taking them to our innovation team incubator, RISE, and allowing them to meet companies is a great way. We know the client pain points, and we are either invested in or studying the FinTech firms, so we can put them in contact to see if they can help with some of those issues.”