Barclays Capital revamps FX swaps, adds Asian impetus, in push for No.1 in FX
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Barclays Capital revamps FX swaps, adds Asian impetus, in push for No.1 in FX

Since 2008, Barclays Capital has narrowed the margin on the market leader Deutsche Bank in the Euromoney FX survey from 12.58% to 4.89%. On average, the gap has narrowed 2.56% each year. Can it beat the average this year and topple Deutsche?

"The volumes speak for themselves
so we should be in a very good spot.”
Nick Howard 

According to Nick Howard, the bank’s global head of FX sales, it could be a tight finish. During the past 12 months, the bank has attempted to round out its FX franchise – where it has been more renowned for its spot provider – by boosting the business it does in the swaps and forwards markets. By building better electronic pricing and adding new work-flow functionality for its clients, BarCap has ramped up its capacity to process swap and forward trades. As a result, swaps volumes were up 25%, and forwards rose sharply by 57% in 2011. Spot volumes were also up by 25%.

“The volumes speak for themselves,” Howard tells EuromoneyFXNews. “We are actively encouraging our clients to participate in the survey – it’s an important benchmark of our performance – so we should be in a very good spot.”

Much of the effort in swaps and forwards has been targeted at real-money investors, where BarCap identified gaps in its market share with its closest rivals. In Europe, it has lagged Deutsche and UBS, last year finishing fifth, while in the US, in last year’s survey, it relinquished its leading position with real-money clients to Deutsche, giving away 4% of market share.

Nonetheless, Howard says the effort was more than just about reclaiming market share – the core of the strategy was to do more business with clients who had relationships with other parts of its FICC division.

“We have put a real focus on the cross-fertilization of our business and this approach has continued to mature, particularly in the real-money sector,” says Howard.

BarCap vs DB geographic FX volumes 2010/11 

 Source: Euromoney Market Data

Upgrading BARX From a technology perspective, BarCap set about overhauling all of BARX’s pricing, risk-management and spread-management architecture, which Mike Bagguley, BarCap’s global head of FX trading, says has enabled it to show consistently tighter pricing, while also increasing the level of auto-priced liquidity to clients.

In the swaps market, it introduced streamlined, fully configurable and dealable swap runs, as well as upgrading its FiX API for swaps clients. Furthermore, the bank sought to push more volume through multi-dealer portals, a preferred execution venue for real money being that of FX Connect.

“We had perhaps not focused on this product, FX Connect, to the degree that we have today, and now we have a leading connection,” says Howard.

That has seen BarCap move rapidly up the table on leading providers on FX Connect. The latest data from December puts them in the top three, out of 98 providers globally, it says.

The work done with BarCap’s operations and IT departments to improve its STP capability for swaps and forwards has now allowed it to better handle big month-end bulk trades, fixing trades and regular maintenance trades, thus complementing the pricing enhancements made on BARX.

In terms of its spot business, Bagguley says BARX continues to be the place where clients come to seek liquidity when they need it most.

“We’ve spent a lot of time making sure our trading and sales teams, and our technology functions, work well even at a peak stress moment,” he says. “In 2011, there were a number of stress points in the FX market. It has been critical to put out a lot of great prices and be able to process a lot of volume, and perform during those events.”

However, on two particular occasions, namely the aftermath of the Japanese tsunami in March and the Swiss National Bank’s intervention in September, BARX ceased market-making in these certain currency pairs – a situation some competitors were quick to cease upon as a question mark on the robustness of the platform.

Bagguley and Howard are somewhat bemused by this. They point out several other single-dealer platforms also temporarily withdrawn from market-making in those moments, or on other occasions during 2011. That seems to suggest BARX may have become a victim of its own success, perhaps a tall poppy. The reality, says Bagguley, is that those moments had little impact on client flow.

“We continue to get big volumes – four out of five of our highest-volume days ever occurred in the third quarter,” he says. “People come for that action.”

In EuromoneyFXNews’s inaugural buy-side e-trading survey, BARX was voted the most-preferred single-dealer platform. 

And it’s not a market position that it takes for granted, as work continues to improve the efficiency and speed of all its pricing channels. For instance, BarCap upgraded its API pricing and confirmation systems, so that service and pricing are now done within single-digit milliseconds, says Tim Cartledge, head of BARX and spot, who last year transferred to Singapore.

Keeping a close eye on the Asian tiger

His location, and that of Adrian McGowan, global head of forwards, in Singapore, illustrates the bank’s increasing focus on the Asian region, a key battleground for BarCap as it seeks to close the gap on Deutsche – in the previous two years, Deutsche has held a 10 percentage point lead over them.

One of the key initiatives this year for the firm is to develop and promote electronic markets in the Asian non-deliverable forwards market, which still remains a largely voice-driven market. With Asian currencies, including RMB, now making up 12% of global turnover – about the same as sterling – the electronification of the market represents an opportunity to boost that proportion even further. To date, market makers have been reluctant to move in this direction. That said, regulation is pushing them that way, and BarCap wants to be at the forefront.

Elsewhere in the region, BarCap says it is regularly a number-one market maker on Tokyo’s TFX exchange, where on high-volume days it can represent up to 40% of turnover, says McGowan. Other developments include the embedding of trading operations, both in voice and electronically in Sydney, where it has put increased resources since 2010.

Perhaps the most crucial area where it has gone head-to-head with Deutsche in Asia is in the area of trade finance, where BarCap has expanded its corporate bank but where Deutsche has maintained a leading position in the cash-management and trade-finance business for many years.

“We’re doing a lot of FX on the back of trade finance and that’s new business for us in the last year or two,” says McGowan. “This is a key gap for us to close, in relation to both multinationals and large local corporates.”

BarCap says volumes in the region are up by as much as a third in 2011, which McGowan maintains is not attributed to “market beta” – in other words, where volumes have risen across the market.

Come the beginning of May, the question will have been answered – has its Asian push and swaps initiatives been enough to get them over the line?

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