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Foreign Exchange

UBS’s FX Trader Plus gives it new cutting edge

New leadership and a revamped single-dealer platform (SDP) have injected fresh impetus into UBS’s FX business during the past 12 months.

 

“We want to be the biggest
flow business there is, but
we also want to be the
smartest flow business
there is.”
George Athanasopoulos

In proceeding years, the bank’s progress in FX had been hampered by what was considered an uncompetitive electronic platform. UBS FX Trader Plus went live last summer and since then has increased volumes significantly, and revenues.

“It has been a full success – it really kicked-in during the fourth quarter of last year,” says George Athanasopoulos, who with Chris Vogelgesang took over the helm of UBS’s FX division in March 2011. The platform was voted the third most preferred SDP in EuromoneyFXNews’ e-trading survey, conducted in November.

Athanasopoulos adds that the increase in e-trading volumes was a “significant multiple” of the volumes seen at the start of the year, rather than a percentage increase, to the point where UBS now does comparable volumes to Deutsche Bank and Barclays Capital, the top two players in FX e-trading.

“We are very confident that our business growth this year was significantly higher than our competitors,” says Vogelgesang. “That should correspond to votes, which should correspond to an improved ranking.”

Overall, UBS says G10 FX volumes and revenues have risen approximately 30%, which represents a good comeback after it was stung by its demotion to third position in the Euromoney FX Survey last year. They were supplanted by, its now bitter rival, Barclays Capital. Indeed, much of UBS’s recent impetus has come from a group that were formally from BarCap, including Athanasopoulos himself.

It has been the driving force behind the development of UBS FX Trader. Chris Purves joined as global head of FX e-trading in October 2010, along with Mark Meredith as head of FX e-trading quantitative analytics and Parwinder Sekhon as head of FX algorithmic technology, all from Barclays. The three have revamped UBS’s e FX-pricing, risk management and client trade product range.

Proof of the pudding is in the eating

If there were any question marks about the stability of the platform, they were soon answered, after the Swiss National Bank’s decision to introduce a SFr1.20 floor in EURCHF in September played havoc with one of the bank’s core markets.

UBS FX Trader quoted through the turmoil that saw EURCHF jump 10 big figures in a matter of minutes.

“The electronic business has a lot to do with it because it allows you to internalize a lot more of your flow,” says Vogelgesang.

“Our ability to absorb the risk of the clients once it is transferred to us has grown as the business has become deeper and more diversified,” adds Athanasopoulos.

With internalization ramped up, and much of its electronic flow automatically hedged via algorithms, Vogelgesang says his team of spot traders could put a lot more emphasis on speaking to clients and executing the larger trades.

“The number of smaller tickets and the volume went up because of algo, and the number of larger tickets went up because our voice guys have more time to work large orders,” he says.

Swaps and corporates

While UBS expects a considerable pick up in spot volumes in this year’s survey, and therefore should improve its position from eighth in last year’s survey (spot and forwards), there are possible chinks in its armour – one being an over-reliance on its swap business, and two being underweight in the non-financial corporate sector, especially in the emerging markets.

Some competitors say UBS’s swaps franchise has suffered this year as the result of counterparty concerns and credit ratings amid the European sovereign debt crisis. Vogelgesang dismisses such suggestions.

On the contrary, he says tensions in the European funding markets have prompted an increase in volumes, as European banks, shut out of dollar lending markets, used the swaps market to access dollar funding. Instead of losing market share in FX swaps, UBS is reaping the rewards from their initiatives in e-trading, he says.

Nonetheless, the swaps market has become exceedingly competitive, and there has been much talk within the market that short-dated swaps are being quoted at a loss, purely to boost volumes. One source tells EuromoneyFXNews that a bank where he had previously worked, until late last year, budgeted to lose $40 million to gain business in the swaps market in 2011 to drive volumes higher.


 Global swaps market volumes (Euromoney 2010-2011)

 
 Source: Euromoney Market Data

As far as the corporate business is concerned, it’s an area the bank knows there is still a lot of work to do. Athanasopoulos says that while the bank is a market leader among Swiss corporates, it has not been able to replicate that success outside its home market. The bank has seen its market share drop from fifth, with a market share of 7.43% in 2009, to a lowly ninth in last year’s poll, with a market share of under 4%. That puts UBS almost two percentage points behind BarCap, which had a share of 5.95%, and more than 8% behind Citi, the market leader among corporates with a share of 12.55%.


Athanasopoulos maintains, however, that UBS can be a leading player in corporate FX, given its activities in investment banking and M&A, capital markets and equities. He says the bank is beginning to see the results of a plan initiated two years ago to increase its presence in the sector and has invested heavily in Europe and Asia.

“The corporate roll-out continues,” says Athanasopoulos. “We are starting to see very real traction in the last six months, but this is something which takes a long time to build. It’s a longer-term business, not a business you can put together in two days.”

This weakness is no more apparent than in the emerging markets, though still a small percentage of overall volumes, is growing fast.  Asian FX volumes, including China now represent 12% of global turnover.

In last year’s survey, UBS ranked 21st in emerging markets, ex-Japan and Singapore, with corporates, whereas Deutsche and BarCap were ranked in sixth and seventh spot. It’s a position the bank thinks it will improve in, especially Asia.


Emerging market non-financial corporates FX volume (Euromoney 2011)

 
 Source: Euromoney Market Data

“The growth in EM FX has exceeded the growth we’ve seen in the overall FX business,” says Athanasopoulos. “We have the capability – it’s more of a question of getting the sales force focused on delivering the product. If you look at any survey of EM, you will see the largest area by far is Asia.” In Asia more generally, after dropping two spots to fifth in last year’s survey, UBS has put more resources into the region by re-staffing its Japan office and investing in non-Japan Asia and Australia.

In reviewing 2011, there’s no doubt UBS FX Trader stole much of the kudos for the division, but both Athanasopoulos and Vogelgesang are keen to point out it has been a team effort.

For instance, UBS FX notched up record revenues in its FX derivatives business, run by Tony Hall, and has created a new structuring team. It is also putting great emphasis on its research capabilities, which the bank believes has driven client volumes in what has been a testing time in the FX market.

“You can think of the strategy here as more of a barbell rather than a strategy of let’s build the biggest flow business there is,” says Athanasopoulos . “We want to be the biggest flow business there is, but we also want to be the smartest flow business there is.”



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