Best liquidity provider for forwards/swaps and Best liquidity provider for options – Deutsche Bank

Deutsche Bank has invested in refining its pricing models and risk management approach for the forwards and swaps market to offer the best liquidity, pricing and workflow solutions

As an increasingly larger proportion of FX trading goes digital, Deutsche Bank continues to make significant investments in new digital solutions designed to make its clients’ trading more efficient and streamlined.

Electronic trading has long been a strategic priority for Deutsche Bank. The bank revolutionised FX electronic trading when it launched its single-dealer platform Autobahn in 1996, and has continued to invest in its digital offering ever since.  

Deutsche Bank’s continued commitment to its FX franchise has been evident in the past year. The bank worked hard to meet the needs of its clients during the most turbulent times of the Covid‑19 pandemic while actively widening the available range of FX products and solutions.

“We have put in enormous effort to ensure that derivatives is an area in which we are world-leading, and I believe we can remain a leader there in years to come,” says Russell LaScala, global head of FX at Deutsche Bank. 

“Deutsche Bank has made a significant investment in electronic FX trading to ensure we have a compelling offer that differentiates us from competitors and provides a strong foundation for future success,” he says.

While much of its focus in the past year was to work closely with its client base to find the best way to keep them connected, Maria Prata, global head of e-FX institutional client group sales at Deutsche Bank, explains that providing them with data and research in addition to execution services was especially important.

To this end, the German bank reinforced its Market Colour app with a number of new features. The app, which provides current and historical pricing, and other market data, was extended to support option delta hedging, where there is a new study on realised and implied vol. Market Colour is now integrated with Bloomberg to help its clients analyse the curve across multiple products, including spot and options. What is more, the app was beefed up with statistical modelling, in-house quantitative analytics and other market information that is not widely available across the market. 

There is also a pre-trade tool called Market Radar, which is Deutsche Bank’s estimate of volume going through the market and provides pre-trade analysis to estimate participation, market impact, estimated indicative risk transfer price, average slippage, and real-time and post-trade transaction cost analytics.

“Accessing information in a very efficient and automated way was definitely on the rise last year,” says Prata. “We saw a spike in the use of our Autobahn single-dealer platform, and particularly an increase in the usage of Market Colour, the pre-trade analytics platform we provide to our clients.”

On the product front, Deutsche Bank added several new currency pairs to its non-deliverable forward algo offering with the addition of Latin American currencies such as the Brazilian real, and the Chilean and Columbian pesos to the other six Asian currencies already widely traded on the bank’s algo suite. To make this possible and to solve the dearth of over-the-counter (OTC) liquidity for these Latin American pairs, the bank began to tap the onshore market through exchanges, such as the Brazilan Mercantile and Futures Exchange in the case of the real.    

We saw a spike in the use of our Autobahn single dealer platform, and particularly an increase in the usage of Market Colour, the pre-trade analytics platform we provide to our clients

Maria Prata, Deutsche Bank

With the lines between the OTC and exchange worlds becoming more intertwined, such hybrid solutions are becoming more commonplace. 

“Clients continue to adapt their technology solutions,” says Prata. “They are looking for more efficient and more cost-effective ways to do their hedging or FX trading activity.”

To help them in this endeavour, Deutsche Bank has worked alongside some of the largest exchanges in the FX market to enable its clients to post their interest for FX swaps on exchanges via the Autobahn platform. With this innovative solution, clients simply leave their swaps order requirements with the bank, including how they would like to execute, when and at what level, and it executes the trades on their behalf when their conditions are met. This provides a significant time saving for its customers since, until recently, they would be required to continually check whether market conditions met their requirements themselves.

This, the bank says, is transforming its clients from simple price-takers to more autonomous players with far greater control and agency over their positions, and is in line with the bank’s drive towards further streamlining and automating more FX processes.  

And, as more market participants are integrating technology into their FX workflows, many of them are now asking for an application programming interface (API), straight-through processing solutions or even new order types. This is particularly true in the forwards and swaps space where electronification is progressing rapidly.

“Much effort and investment have been put into refining our pricing models and risk management approach for the forwards and swaps market to make sure we have the very best liquidity, pricing and workflow solutions,” says Prata.

She says corporates and institutional clients are increasingly comfortable trading these products electronically up to a certain size and tenor. They may still pick up the phone to speak to a salesperson or trader for advice on the best ways to execute, or possibly have an algo run at the most illiquid times of day, but electronic execution is gaining ground. 

On the FX options front, the pace of digitalisation lags behind that of other instruments in the FX market. But Deutsche Bank saw a spike last year in the volume of options executed digitally on Autobahn.  

Keen to build on that momentum, Deutsche Bank added 20 additional currency pairs to its platform, which – on top of the 60 pairs added the previous year – brings the total to 200 streamed FX options pairs. It also improved its offering with more target profit forward (TPF) options, including risk reversals, inverted strikes, American and discrete count pivot TPFs.

“FX options are a smaller part of the e-FX market, but it’s an area we see more activity coming through,” says Prata. “Clients are increasingly trading smaller deals on vanilla options directly through single-dealer platforms or via APIs.

“With everything that was going on last year, clients found for themselves where they needed to get access to options in a more efficient way. Since many were working from home or were restricted in the type of systems they had in front of them, doing this electronically was their best option.”

To ensure more price liquidity during volatile times, Deutsche Bank continued to invest in its Autobahn OTC structured (AOS) offering. AOS is a favourite with small and medium-sized corporates as they can take a proactive approach to their hedging needs, something they would not usually be able to access because of their size.

Another function that proved popular with its clients was the addition of an unwind execution function to the AOS platform, which allows Deutsche Bank’s clients to unwind their trades electronically just as easily as they would execute a new trade, a particularly useful feature when managing complex portfolios. 

Deutsche Bank was voted Best liquidity provider for forwards/swaps and Best liquidity provider for options at the 2021 FX Markets e-FX awards.

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