Just over a decade ago the future for multi-bank portals looked rather bleak. Substantial investments in the technology had been made, but industry take-up was nevertheless lagging. It appeared, for all intents and purposes, that the days of multi-bank portals were numbered.
Fast-forward to the present day and the picture is very different indeed. Those providers that managed to endure the difficult early years eventually found a way to be profitable. The limitations of the first, primitive offerings, such as the absence of straight through processing (STP), were eventually addressed and efficiency and convenience became two of the technology’s biggest selling points. Not only did the multi-bank portal survive; it went on to become the most prevalent FX trading solution for corporates on the market.
That has not led to the demise of the single-dealer portal, though. On the contrary, banks have in fact been ramping up investment in their single-dealer offerings. Improving user experience, as well as fostering closer relationships, has been key to the strategy which, evidence suggests, is working.
Although most of the respondents to the survey are from financial institutions that tend to prefer the more sophisticated single-dealer platforms, the results are still striking. After all, it is well known that price competitiveness is the reason a lot of non-financial corporates use multi-dealer platforms in the first place. For Mitsubishi’s European subsidiary, which brought in its first portal around 12 years ago, that was and continues to be the case. “We chose a multi-dealer platform and one of the key reasons for that was to be confident that we were getting the best price on our trades,” notes Gary Williams, General Treasury Manager at Mitsubishi Corporation Europe.
Treasury will still hop on the single-dealer platforms from time to time, he explains. However, given that the foreign exchange exposures are not enormous, those instances are, he says, few and far between. “If we were to deal something significant we would certainly use a single-dealer portal and talk to the bank direct. That’s because showing everybody on the portal that you have a large deal on the cards can start to affect the price you receive. That’s never a good idea.”
The sentiment that the best price is only achieved through competition on a multi-bank platform is understandably still shared by a large number of treasurers, particularly those at companies that do not tend to find themselves making frequent large trades. “In general, single-dealer portals are not our preference because we want to make sure we get the best rate,” says Dimitris Papathanasiou, Financial Risk Manager at Coca-Cola HBC AG. “We are aware that single-dealer portals have some benefits, but we don’t feel it makes sense to only go to one bank,” he explains.
“Some banks prefer to promote their own electronic platforms by providing better quotes there than the multi-bank platforms. But at least when you use a multi-dealer platform you are pushing the banks to compete with one another, so these dealers are losing our trades.”
But like Mitsubishi’s Williams, Papathanasiou is well aware that multi-bank has its limits. There are, for instance, certain instruments for which single-dealer platforms are better suited. Take options, for example, which he says are not yet available to him through his multi-dealer portal. “Right now most of the banks do not price options in the multi-dealer platform automatically. The process is a bit more manual – you have to go on to the platform and put in a request,” he notes. “But we still get competitive pricing-even outside the platform – as I will never go to just one.”
Most treasurers, like Williams and Papathanasiou, will often speak of price competitiveness first and foremost when the advantages of multi-dealer portals are discussed. However, there are a number of other benefits too. “I think they can offer the best price if that is what they are looking for,” says Jodi Schenck, Managing Director of Global FX eSolutions at Citi. “We are constantly hearing from our clients that there are regulatory or internal compliance reasons why they need to get more than one price. But I would say that it is not always for the best price, it is for a multitude of reasons.”
Evidently, even where there is a stated preference for multi-bank, treasuries still have uses for single-bank offerings. So although much of the debate around FX portals is framed in terms of ‘it’s one or the other’, the reality is that most corporates still need both. “What does that say about single-bank portals?” asks Schenck. It tells us, she explains, that there are other services banks like Citi will provide their clients, which urge them to deal with them in other ways, besides a multi-dealer platform, such as through Citi’s proprietary solution, CitiFX Pulse.
“We are aware that single-dealer portals have some benefits, but we don’t feel it makes sense to only go to one bank.”
Dimitris Papathanasiou, Financial Risk Manager, Coca-Cola HBC AG
That multi-bank portals are convenient and easy to use is beyond dispute, she adds. But there are certain types of flows where people can get the transparency of pricing and a more efficient means of execution by using a single-dealer platform. Then there are all the additional services that come as part-and-parcel of the package. “We are not going to move away from sales people giving one-on-one colour about what is happening in a particular market,” says Schenck. “Through using our portal they have access to our economists, to our technologists, our risk advisory group, our algorithms and our benchmark execution. So there are multiple ways to get better execution when they are not just looking to get the best price.”
Like Citi, Société Générale does not see any reason why clients must necessarily choose between the two types of FX portal. In fact, the bank is quite emphatic about the neutrality of its stance on the FX portals debate. Although there is some preference amongst non-financial corporates for multi-dealer portals there are still some in the sector that prefer a single-dealer environment, and an even greater number who use both. That’s why the bank, despite launching its own proprietary portal, Alpha FX, in 2009, has continued to focus on improving the offering for those that trade with them from a multi-dealer portal; rolling out functionalities, such as FX options, that some banks reserve for their single-dealer portals.
“For us the most important thing is to be relevant to our clients, however they want to trade. Whatever platform they use we say we will be there on the other side,” says Stephane Malrait, Global Head of FIC eCommerce, Société Générale Corporate and Investment Banking. Pascale Moreau, Managing Director, Co-Global Head of Sales, Fixed Income, Credit and Currencies at Société Générale Corporate and Investment Banking adds, “we realised that was what we needed to do to effectively support our clients. We needed to be better on a multi-dealer platform as well as developing our single-dealer offering.”
This seems like a sensible strategy. Everyone has their preferences, after all, so why push treasurers to deal in an environment they are unfamiliar with or have reservations about, for whatever reason? “An ex-trader who moves across to the buy-side is going to be used to single-dealer portals, and will probably want to stay in that environment,” says Malrait. Equally, a client who is used to trading on a multi-dealer platform will also be reluctant to change. “Even if you tell them the price is better, they already have their back office processes. So we find that it is usually quite difficult to move a client from one category to the other.”
“I guess we don’t pick up the phone and have those traditional conversations quite so much anymore.”
Dimitris Papathanasiou, Financial Risk Manager, Coca-Cola HBC AG
Whatever one thinks about the pricing of deals made on single-dealer versus multi-dealer platforms, there are certainly other factors for corporates to weigh up when sending out an RFQ, as Moreau is keen to point out. “Of course, corporates value best-execution,” she says. “I think price is a very important component of that, but it is not the only consideration. Sometimes it is about picking the right counterparty to the trade, and that might be determined by the relationship you have with the bank, the research and advisory services that is provided, and so on.” The question is to what extent is that relationship influenced by portal choice? Do corporates loyal to multi-bank portals feel their FX relationships have changed as a result of their choice? And does trading near-exclusively on multi-dealer portals diminish their access to such research and advisory services?
“I think the relationship has changed,” says Coca-Cola’s Papathanasiou. It is not necessarily the case that bank relationships have become less important to himself and his team though, it’s more that modern technology has enabled them to communicate a lot more efficiently than they were doing previously, he rationalises. “I guess we don’t pick up the phone and have those traditional conversations quite so much anymore” he concedes. “But we try to be close to the market as much as possible so we do still have discussions from time-to-time. The difference is that these days the interaction through the phone is not every day and sometimes those discussions are conducted on a computer, using Instant Bloomberg (IB), for example.”
It is a similar story at Mitsubishi Europe’s treasury. “I think those relationships are still important but I would say that they have been scaled down somewhat,” says Williams. “Out of the panel of banks we have on our portal, we maintain close relationships with two or three of them.” That is beneficial in a number of ways, he adds. For one thing, it helps them to handle the one-offs – there could, for example, be an order that Williams is not necessarily confident of executing through the platform. In that instance, he would go to the bank directly, as he would to gain access to research or to attend to the convertibility issues sometimes encountered when dealing with certain esoteric currencies.
Even many of the multi-dealer portals themselves acknowledge that good banking relationships are a crucial factor in fulfilling certain trading objectives, including tighter, faster pricing. It doesn’t mean the treasurer has to be on single-dealer portal to maintain those close relationships, they point out.
In fact, some savvy treasurers might want to use both in conjunction with one another when the circumstances call for it, Jim Kwiatkowski, Global Head of Transaction Sales for Thomson Reuters tells Treasury Today. “Some will be using multibank platforms to facilitate straight through processing of trades which have been executed on the phone collaboratively with their bank salesperson,” he notes. “While corporations maintain banking relationships for a variety of reasons, multiple bank counterparties can assist the treasurer in accessing liquidity to execute a particular trade. Some banks may be better able to accommodate a particular currency, size or time of day to meet the needs of the treasurer.”
“Of course, corporates value best-execution. I think price is a very important component of that, but it is not the only consideration.”
Pascale Moreau, Managing Director, Co-Global Head of Sales, Fixed Income, Credit and Currencies, Société Générale Corporate and Investment Banking
Ultimately, then, there is room in the market for both single and multi-dealer FX solutions. However, one final piece of advice for treasurers, whatever FX solutions they use, would be to think regularly about exactly what they want to achieve with their FX trading – from lower transaction costs to faster execution, for example – and whether the technology they are using for a given trade is really the right fit.
“It’s therefore important that traders carefully evaluate which execution mechanism is appropriate for a particular objective in order to maximise performance,” adds Kwiatkowski, “And that they continually re-evaluate their choice of trading mechanism based upon their actual results to ensure that their objectives are being met.”