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| FX Survey 2012: Results index |
Morgan Stanley has reaped the rewards for its investment in electronic trading to overtake Goldman Sachs and swap places with its arch-rival in this year’s Euromoney FX survey. That investment was part of an attempt to shed its image as a niche hedge fund player and broaden its client base. It would appear to be succeeding.
Overall, the bank rose one place to ninth, with its most eye-catching move coming in options, where it charged from 10th to fifth place, taking its market share up from 5% to 7.9%. Part of that increase in market share in options came at the expense of Goldman, which plummeted from second position to 10th. Morgan Stanley also performed well in swaps, climbing four places to 10th, lifting its market share from 1.74% to 2.13%.
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| Stephen Glynn, co-head of Morgan Stanley’s FX business |
Morgan Stanley’s performance in options and swaps does not surprise Stephen Glynn or Senad Prusac, the co-heads of the bank’s FX business. Although Prusac notes that last year in options the bank did begin to trade with one big new client, he says the result is a reflection of several years of investment in the bank’s single-dealer platform Matrix and its overall e-commerce strategy, which has begun to deliver. “As clients deal more vanilla products like spot over our electronic platform, it is only natural that they would graduate to more complex products such as options and swaps,” says Prusac.
The bank says it made important investments in 2010 and early 2011, looking to broaden its client-service abilities. That was not just in the e-commerce spot world over Matrix, but also in other e-commerce opportunities in options, swaps and forwards.
Those decisions were based on a realization that to stay in the top tier in FX, the bank, which has traditionally been seen as a hedge fund house, would have to cast its net wider. It also reflected a strategic shift at the very top, with chief executive James Gorman making it clear that, for the bank as a whole, he wanted to build a platform that would intermediate risk on behalf of clients rather than take risk on behalf of itself.
Glynn says what is happening in FX is a microcosm of the transformation across the fixed-income business at the bank, which is focusing more on intermediating flow products, an area in which he concedes it has traditionally been weak. That was reflected in the Euromoney 2012 rates survey, in which Morgan Stanley’s market share increased in euros, dollars and yen.
“We were historically perceived as a hedge-fund focused firm,” Glynn adds. “A couple of years ago we certainly felt that we didn’t have the breadth of coverage and the variety of client base to allow us to obtain the critical mass that you require to be a long-term, top-tier player in FX.”
The first step towards building that critical mass came in developing its electronic capabilities, and those efforts are starting to show. Morgan Stanley’s market share in e-trading rose from 2.75% to 3.65% in this year’s survey, taking it from 11th to ninth position.
Those improved e-trading abilities also translated into a better showing in the bank sector, in which it moved from 14th position to 13th, raising its market share from 1.28% to 1.51%. That is a sector that Morgan Stanley sees as a key growth area as the FX market polarizes towards those banks that have the resources necessary to invest in the technology required to become a liquidity provider. “As the market consolidates, the bank sector is going to become increasingly important, and we feel we are in a position, through the investments we have made in our platform, to service those clients,” says Glynn.
Although the bank’s market share with hedge funds slipped after a large rise last year, it made progress in other areas as its efforts to widen its client base started to materialize. The bank rose from 18th to 15th position with corporates in the poll, and climbed one spot to eighth with FX trading platforms. Its market share also rose among real-money investors and private investors.
Geographically, Morgan Stanley held steady in western Europe and North America, but the bank, which was one of the first to merge its emerging market and FX businesses, made progress in developing markets. In Asia, it moved from 16th to 11th position and from 16th to 14th in CEE. It stayed in fourth place in Latin America, but slashed the gap to the leaders in the region, lifting its market share from 5.42% to 11.5%.
Glynn believes Morgan Stanley is set to make further progress as it drives towards becoming a flow-driven FX player. “We have built a broad and pretty solid foundation in most of the major client areas but we are by no means finished building our market share with those client segments,” he says.
