Although the bank recognized that it could be a source flow, senior management were wary of the reputational risk that facilitating access to the vast FX market carried. Now, though, the launch of FX on Barx by sister company Barclays Stockbrokers suggests that the bank has made a U-turn.
It is hard to ascertain just how big retail FX now is. According to US regulator, the National Futures Association, there are 25 registered forex dealer members in its jurisdiction, and there are probably as many again in each of the UK, Japan and Switzerland. Saxo, one of the leading players in retail FX, has more than 100 white-label partnerships. So data from the 2008 Euromoney FX poll suggesting that there are about 150 platforms globally and that they pass on $20 trillion of flow a year (about $80 billion a day) to their liquidity providers, FX trading banks, looks a conservative estimate. With many of the retail aggregators internalizing their flow and looking to capture at least part of the bid-offer spread in much the same way as banks, the amount of business transacted is likely to be in excess of $100 billion a day. And, for the moment, leading figures in the sector say it is still growing at a phenomenal rate.
The large banks are aware of the potential of retail, having long attracted second-hand flow from the aggregators by providing them with liquidity. Even those that have launched their own offerings continue to provide their supposed rivals with prices; in some cases, they have gone further by either agreeing white-label deals or by licensing and customizing their technology.
Barclays, which is always swift to say that its climb up the Euromoney rankings is largely because it has not followed a ‘me too’ strategy, appears to have done it differently again when it comes to retail. Entering the sector provides many challenges. Leading retail firms, such as Oanda, process far more tickets each day than the banks possibly can and have to manage many thousands of accounts. The issue of knowing your client is one that the banks have to take seriously.
Barclays is using technology from vendor Integral to build out FX on Barx. It describes the deal with Barclays Stockbrokers, the UK’s largest retail equity broker, as a white-label solution. Barclays Stockbrokers has more than 400,000 clients, with about a quarter of these deemed to be active.
Barclays says that it will look to do other deals. “The Barx white-label solution allows our clients to manage all aspects of their private investor eFX business, ensuring they maintain full control of their own customer relationships,” says Marek Robertson, head of European Barx FX institutional sales at Barclays Capital. “We’ve worked closely with Barclays Stockbrokers as our first partner, and the product has exciting global potential.”
Barclays Stockbrokers is confident that its new FX offering will prove successful. As part of Barclays wealth division, it sees substantial FX flow and provides access to the currency market through spread bets and contracts for difference. “We’ve got a healthy range of clients that are already active in spread betting, CFDs and other derivatives,” says Tom Ryan, head of proposition at Barclays Stockbrokers.
“Since January alone we’ve seen a 26% increase in FX trading through these products,” says Ryan. “We asked these clients what they wanted in an FX product, such as functionality, pricing and currency range and we’ve developed what we think is a market-leading solution. We’re the UK’s number one retail broker in terms of equity volume. We think FX is an asset class our clients are now ready for.”
