Best foreign exchange house

BARCLAYS CAPITAL: Developing e-commerce is now paying dividends, especially in product distribution

All three banks on this year’s shortlist, Deutsche, UBS and Barclays Capital, featured in the final deliberations for the same award in 2008 and 2007. With them also taking the top spots in the 2009 Euromoney FX poll, one could be forgiven for thinking that all the decision process requires is a simple rehash of last’s year’s award. But it is not that simple. The overall excellence of the FX market means that many other firms have interesting stories to tell – it is a shame that many did not take the opportunity to recount them. Size or, as the banks say, footprint, is important, but it is by no means the only criterion for such a subjective award as this.

There was common ground in the pitches of all three banks. All claimed that they had uniquely continued to quote tight rates in decent amounts at all times to their clients in all products. In the case of Barclays and UBS in particular, their consistency is astonishing given the turmoil that affected both banks at a group level.

As for Deutsche, nobody in the FX market would have expected anything less than excellence. Furthermore, the bank has emerged from the sub-prime crisis in far better health than most of its serious FX competitors, allowing the Teutonic titan to build on the relative strength of its balance sheet and further capitalize on the solid infrastructure of its FX business. Deutsche also deserves plaudits for the way it has supported certain initiatives for the greater good of the industry, such as the Icap-CLS Melody post-trade aggregation service. But despite its continued overall excellence, Deutsche has not won this year’s award.

Neither has UBS. Its FX business has continued to perform remarkably, but there is no doubt that the bank’s wider problems have had an adverse impact.

Barclays, however, seems not only to have continued to operate its FX business largely unfazed by the turmoil that engulfed its overall business but has also expanded it and carried on innovating. It even managed to increase its share in the 2009 Euromoney FX Poll from 9.12% to 10.45%, while both Deutsche’s and UBS’ shares declined.

Barclays has not been forced to slash and burn its FX headcount, unlike some of its peers. According to Nick Howard, Barclays’ head of global FX and markets distribution, the bank’s FX headcount has increased by about 20% over the past 12 months.

Obviously, the acquisition of Lehman Brothers’ operations in north America is a big reason why this is the case. The deal also gives Barclays a presence in the Americas that it did not have before. “The Lehman acquisition is still not fully digested in the market in terms of the sheer depth and breadth it provides,” says Howard. “We are now as local in north America as we are in Europe. FX connects to every other asset class; if you’re involved in equities or fixed income, you’re involved in FX. That means Barclays will be able to connect across different asset classes globally.”

“The algorithmic offering is the ideal way of shifting blocks around in these very thin markets” Tim Cartledge, Barclays Capital

The bank is looking to strengthen its Asian business by sending out some of its big hitters to the region, and clients are already reporting that the bank’s pricing has improved in recent weeks in the time zone. “Our commitment to Asia is unquestionable. One of the beauties of the Lehman acquisition was that we ended up with some very talented individuals. We sometimes ended up with some overlap in certain regions, but that allowed us to export some incredible talent to Asia,” says Howard. Barclays’ decision a few years ago to push the boundaries in the field of e-commerce is now starting to pay solid dividends, especially since it has greater scope to distribute its products. It made no secret of its desire to build up its own liquidity pools – as did several of its competitors – and nobody would disagree about the excellence of its Barx platform. The bank is now internalizing more than 80% of its cash FX flow, which has given it a huge degree of independence in pricing from external platforms.

Again, other banks can make the same claim, but Barx still seems to be leading the way. In recent months, three separate trades of more than $1 billion have been executed by clients algorithmically on Barx. “Clients have realized that the algorithmic offering is the ideal way of shifting blocks around in these very thin markets,” says Tim Cartledge, co-head of Barx FX trading.

Barclays also revamped its exotic option request-for-quote (RFQ) functionality in early 2009. “We’re giving our clients the same tools as our sales people have to price and deal in various barriers, accruals and strips. We think the key difference is that we’re not just getting the pricing right, but we’re also offering the size. It’s a very industrial tool for clients to price up complicated transactions,” says Cartledge.

But Barclays’ success is not just a technology story. Barx is a solid trading platform, but it also acts as an easily distributed interface between the bank and its clients, delivering them news, analytical tools and research, which can be backed up by a more hands-on relationship with a salesperson. Perhaps worryingly for its competitors, the bank is now in a position to distribute its offering more widely.