Separating the men from the boys in global FX

It’s interesting to see recent blog comment regarding Morgan Stanley’s new Matrix platform, and what else is needed (in terms of full range of products) to enable them become a top five global FX house.

In my opinion, it’s naïve to assume that a shiny new User Experience (UX) and a more complete product set is what separates the men from the boys in FX.

Deutsche, UBS and BarCap have risen to dominate the global FX business due to three key factors:

1. Total commitment at board level to an ongoing, multi year, multi million dollar investments in FX technology

2. Deep understanding of liquidity, and continuous adaptive optimisation of back end FX pricing engines and risk management tools, and the ability to internalise global flows

3. Ability to deliver unique back end capabilities to clients across any platform

Once back end capabilities are in place, and you are able to internalise global flows, then you can start to package and provision your liquidity together with unique pre and post trade workflow services and deliver truly compelling and unique offerings tailored to each client segment, in your own new front end!

In 2007 I read with interest a quote that is even more relevant today – Zar Amrolia, Deutsche Bank’s Global head of FX, talked about continually re-engineering between 20-25% of his own business every year, in order to stay ahead, which speaks volumes about having a deep understanding of the market, and interestingly, their front end UX designs are not the most compelling on the street, but they can deliver appropriate levels of liquidity, and workflow solutions required for each client segment.

Currently, Morgan Stanley sits at 11th overall position in the EuroMoney 2009 rankings down from 10th place last year, with 1.95% share, compared to BarCap with 10.45%, and the mighty Deutsche with 21%.

However, if you take a closer look at the sub rankings Morgan Stanley features in only two of the four major segment categories: Real Money 11th, and Leveraged Funds 10th place. Yet, Deutsche, UBS and BarCap are all consistently in the top six in all four key segments.

The learning curve is very steep, and it will be interesting to see over the next few years whether Morgan Stanley has what it takes to stay in the top ten, let alone challenge the top three!