The 1,435 top-tier FX professionals interviewed by the research firm also rank provision of competitive quotes on forwards and spot in major currencies, while active day-to-day coverage – including phone calls, e-mails and faxes – hits the top of clients’ wish lists.
When drilling down to various client segments, the research found success factors to emphasise differing aspects of service quality.
For example, lending carries much more leverage with corporates than among any other type of account. "They are not professional traders; instead, they view FX as part of their day-to-day business, and often they link FX business to the overall lending relationship they have with their banks," explained consultant Peter D’Amario.
Banks, on the other hand, rank competitive spot quoting on majors and consistent quoting in volatile markets as more important. "Many of these customer banks are professional traders themselves, so these ‘convenience factors’ carry more weight relative to ‘value-added’ measures," said Tim Sangston, a consultant at the firm.
Indeed, the results showed e-trading capabilities – both single-bank systems and multi-bank portals – carried more weight with banks than other customer types. "Most banks are looking for fast and competitive execution, and not for ideas or advice," he added.
Hedge funds want global co-ordination of coverage, competitive spot quoting on major currencies, making good use of time, and currency options capabilities. The research also found that back-office processing is more important to hedge funds than to other customer segments. "For hedge funds, it’s about execution and contact, as opposed to the other value-added services," added Canaday.
Meanwhile, fund managers value custody relationship and back-up coverage more than other clients. "The importance of custody is obvious – many fund managers use FX trading as a ‘reward’ for their custodians," said consultant Frank Feenstra. "The importance of backup coverage is more subtle, but probably has to do with convenience – busy fund managers want seamless coverage."
Overall e-trading capabilities surfaced in the lower half of the table. Sangston explained that, globally, less than half the accounts the firm talks to trade online and "for half the market it’s not even a factor". "It’s only a factor at all for half the market, now for that half of the market it may be important, but there’s roughly 50% of the market or more that don’t even trade online at all," he said.
He added that the results may have been tainted by the fact that much of the e-trading volumes go through third-party systems such as FXall, while the regression model used in the research asked for key drivers to making a bank a top-three dealer for FX.
However, he said this by no means negates the significance of e-trading capabilities. "If you look at trends and where the market is going, e-trading is going to become baked into the day-to-day coverage as more and more people start trading online," he said. "It’s going to be assumed that you have good e-trading capabilities just like it’s assumed now that you have capable sales people and competitive market-making, and that you have research."
Indeed, while research was absent from the top of the list, Robert Statius-Muller, a consultant at Greenwich said it does support many of the other factors that do feature. These include understanding of currency needs and the ability to deliver solutions to meet those needs. "That said, FX managers should take note of the fact that our analysis suggests research plays a supporting role as opposed to a decisive one," he added.
The week on Risk.net, November 25-December 1, 2016Receive this by email