e-FX Awards 2020: Best liquidity provider for corporates; Best liquidity provider for options; and Best single dealer platform – Citi

While 2020 presented the FX industry with unprecedented challenges, technology came to the fore in a remarkable manner to smooth the transition towards a remote working environment

Market participants in the FX industry owe much to technology for the remarkable resilience with which the industry overcame the challenges presented by the Covid-19 pandemic. Large FX liquidity providers such as Citi were front and centre in providing their clients with the necessary tried and tested tools to navigate the changing FX landscape as many adapted to a remote working environment.

The pandemic not only fundamentally changed how market participants were forced to operate in times of crisis, but also propelled existing trends, such as institutional clients embracing mobile trading with fervour or corporates intensifying the digitalisation of their treasuries.

While the pandemic disturbed their day-to-day activities, most market participants experienced minimal disruption of service. Even at the height of market dislocation in March and April they were able to carry on conducting business from remote locations just as easily as from an office environment.

“We have to acknowledge that industry-wide technology has been astonishing,” says Brian McCappin, global head of institutional FX and local markets sales at Citi. “The robustness, the latency, the efficacy of pricing and quality of connectivity, all have surpassed everybody’s expectation. This is an industry-wide pat on the back moment; the experience has been phenomenal.”

In Citi’s case, by April the bank had migrated up to 90% of its global staff to work-from-home locations with equal access to liquidity, risk and client data, and transactional and trading applications.

McCappin explains that, while the shift was made with remarkable ease and with minimal consequence to the bank’s operational safety and service, there were some challenges. These, however, were more individual in nature, such as the need to secure speedier internet connections with greater bandwidth for individual employees to operate the company’s range of tools and applications.

“We run endless contingencies and scenarios for various levels of severity that might take down our operation,” points out McCappin. “Obviously all of this planning was beneficial, but we hadn’t planned or certainly never expected this level of contingency.

“In the end, the technology we all sit on has evolved to such a degree that humans were able to carry out their tasks remotely just as easily and stably as if they were office-based.”

The adoption of mobile trading technology is particularly noteworthy in this regard. While market participants had hitherto been cautious about using mobile applications, they readily adopted the technology as the pandemic compelled them to adapt to a remote working environment.

McCappin estimates that, by early June, the share of trading going through Citi’s mobile trading application was 10 to 15 times higher than in the three months before. 

“As it happens, the appropriateness of the product means that we saw an incredible amount of business going through our mobile channel – like nothing we had seen before,” says McCappin. “We always felt there was a place for mobile and that it had a safe and secure role to play in how our clients access liquidity.

“The incredible degree of comfort with which clients are now utilising our mobile trading application has given us great encouragement. We’re grateful for that and are glad that it was there when our clients needed it.”

While an increasing number of Citi’s institutional clients were choosing to trade via the bank’s mobile application, in the early days of the pandemic and at the height of the volatility spike many others preferred to speak to a live sales representative through its voice-trading channel.

“In those early moments of market dislocation many clients migrated back to the traditional risk transfer and high-touch sales support,” explains McCappin. “Businesses that previously happily executed trades via a single dealer’s application programming interface or through an aggregator or platform suddenly chose to pick up the phone and interact with a trusted voice that could facilitate their trading on a risk transfer basis.”

For Citi, this development was vindication of its decision to maintain a certain level of voice trading within its FX offering, despite market participants’ persistent shift towards an electronic environment over the past five years.

“Citi’s decision not to remove that capacity from our product offering was invaluable,” says McCappin. “We’re comfortable with our size and role within the industry, which allows us to do both in an appropriate and targeted manner.

“During normal periods of market volatility most trading can be executed very efficiently through e-channels, but there remain tiers of clients that during times of volatility need to have an experienced hand with a high-touch capability at the other end of the phone to handle their trading,” he says.

But, in Citi’s experience, there are very few market participants that trade exclusively through one channel or another, even under normal market conditions. Even some of the bank’s biggest asset managers regularly use its high-touch channel while also being among the largest consumers of e-liquidity.

For McCappin it all comes down to maintaining the breadth of Citi’s FX offering so that, whatever conditions FX markets may face, the bank has the appropriate solution for its clients.

Upholding vendors to the highest standard 

As liquidity conditions normalised over the summer, market participants naturally reverted to sourcing liquidity from a wider range of channels. A notable difference, however, is that the number of technology vendors with whom Citi was willing to work with was substantially lower than before the pandemic hit.

In late 2019 and early 2020, the US bank began scorecarding vendors in the FX space because it felt the proliferation of vendors was out of control, and many of these failed to live up to the service standards expected of them. Over the course of the year, Citi offboarded all the vendors it felt were not sufficiently robust.

“We felt our clients needed protecting from the next vendor knocking on their door offering something that would ultimately prove to be a waste of money and time for them and us without improving the efficiency of liquidity provision,” says McCappin. “Going forward, we feel the industry should spend money on fewer vendors and move the liquidity agenda forward faster.

“We’ve been running counter to conventional wisdom for a while now because we feel that a single dealer channel continues, and will continue, to be front and centre in the provision of FX liquidity.

“Commensurate with our role as the number one FX dealer we felt we should do our part in providing thought leadership on the vendor landscape issue. We would, however, be very supportive of a third-party initiative to carry out a regular analysis of the vendor landscape.”  

Covid‑19 compels bricks-and-mortar corporates to increase their online presence

While institutional players were availing themselves of mobile FX trading applications and voice services, the pandemic affected corporates’ consumption of FX services somewhat differently. 

This is especially true for Citi’s corporate clients that had large retail distribution channels in dozens of countries. As the pandemic struck and many parts of the world began placing restrictions on their populations, many of these retailers were forced to move a large proportion of their retail operations to an online consumer format in order to survive.

Their currency cycle and FX exposure therefore shifted as they began selling their products in jurisdictions they were not producing in.

“The size of the underlying exposure and of individual transactions went down as a bigger percentage of these retailers’ services moved to a direct consumer model,” explains Sam Hewson, global head of e-FX solutions at Citi. “The result is more micropayments and micro FX activity, rather than the bulk FX that would be associated with a classic distributor model service.”

As most retailers also faced supply chain disruptions because of uncertainty induced by Covid‑19 and the political backdrop in some regions, many accelerated their deployment of digital technologies to help unlock and reduce the various risks in their operations.

Before the onset of Covid-19, many of Citi’s corporate clients were considering digitalising parts of their treasury functions if they had not already completed the process. The pandemic accelerated the transition towards digital solutions that would help them with cashflow forecasting and understanding the underlying risks in their trade lifecycles.

“Whether it’s payments, FX or working capital, the better data companies have on hand, the better and more informed decisions they can make towards improved capital positions and hedging, reduced forecasting error and better cash management,” explains Hewson. 

“Those clients that had been considering digitalisation before the pandemic were suddenly forced by Covid‑19 to accelerate and double down to ensure they had a strategy and execution plan for the digitalisation of their treasury,” he says.

Citi was named best single dealer platform and best liquidity provider for options and for corporates in the FX Markets 2020 e-FX awards. 

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