House of the year, Australia: ANZ

Asia Risk Awards 2019

Shayne Collins, ANZ Markets

Photo: Josh Robenstone

ANZ’s foreign exchange algorithm platform, launched in February, couldn’t have come at a better time.

A weakening Australian currency – along with money managers’ focus on best execution and the ongoing fragmentation in over-the-counter trades – has brought the value of algorithmic trading to the fore. The changing market dynamics and moves to trim cost have meant products have become simpler with reduced duration, which again plays into the hand of algo trading.

ANZ has also pioneered an internal platform for counterparty credit-related transactions that helps it improve its hedging and risk management services. Such innovations have allowed the bank to enhance its loan syndication, rates business and debt capital market capabilities. They have also helped the bank seamlessly execute credit and structured capital markets transactions across geographies.

For instance, Australia’s fourth-largest lender is the only one in the country to have an foreign exchange algo platform that was developed entirely in-house. In contrast, its main competitors depend on third-party vendors or other bank products that they brand as their own. This internalisation gives ANZ the flexibility to fine-tune the algorithms according to current client needs and market moves, and assimilate any changes based on its own data analysis. All intellectual property resides with ANZ.

Shayne Collins, managing director of ANZ Markets, says that the system allows for a high degree of customisation, ensuring that aspects such as liquidity management can be tailored to specific market needs.

Forex algo products are poised to grow significantly in the coming years. According to a report by Greenwich Associates, a US-based management company, a fifth of institutional foreign exchange trading volume is now executed via algos, and the report predicts that this will eventually rise to half of all volume traded this way.

“Clients that have a significant need for currency overlay and forex algo execution expect a seamless experience,” says Collins. “For larger trades, algos can provide a truly viable execution alternative for our customers.”

ANZ’s platform has a pan-Asian reach. Combined with proven hedging and risk management products, the system has allowed the bank to defend and grow its market share in a particularly challenging time: interest rates have continued to decline, the Australian dollar slumped to a decade low in August, and clients have generally reduced risk appetite amid signs of an economic slowdown at home and throughout the world.

Another example of an internal system that helped the bank improve service for clients is the Sky credit risk management platform, which integrates derivative structuring, pricing and risk management capability for trading and sales functions at the desk level.

Clients that have a significant need for currency overlay and forex algo execution expect a seamless experience. For larger trades, algos can provide a truly viable execution alternative for our customers

Shayne Collins, ANZ Markets

The platform has grown from a rates-only platform to be the preferred solution for all products at ANZ, allowing the lender to consolidate pricing across multiple asset classes and customer portfolios. Everything from funding valuation adjustments to credit valuation adjustment are now calculated by this pricing tool.

The platform allows efficient, real-time incremental XVA pricing for proposed trades directly within the pricing platform. Once trades are executed, post-execution functions such as monitoring risk, can also be performed.

“A centralised XVA trading desk monitors and manages the valuation adjustment at counterparty and portfolio level,” says Anshul Sidher, Asia head of trading and markets for the institutional business. “The XVA trading desk is thus able to recommend deal structures which can help identify and hedge in underlying markets, minimising adverse XVA due to mark-to-market fluctuation and identifying opportunities to sell down risk.”

The platform is now a common tool for all counterparty credit-related discussions.

Such platforms have enabled banks to improve co-ordination between teams across geographies and seamlessly execute cross-border transactions.

Client service

Take, for instance, the service offered by ANZ to a client that was selling a business in South Asia.

The client needed to protect the value of the asset in Australian dollar terms. Given the uncertainty around the timing of the sale, impact on cashflows and risks associated with a non-G10 currency, ANZ used a vanilla Australian dollar call structure to hedge the repatriation of flows.

Strong client relationships on the ground in Australia and the ability to leverage off its Asian network helped ANZ deliver the right outcome for the client. ANZ’s Australia-based markets and relationship teams tapped into the local knowledge of the bank’s traders in South Asia, as well as onshore local market risk and sales teams, to navigate the specifics of hedging in an illiquid market.

Support from the trading and market risk desks was crucial in responding to the client’s requirements in a timely manner once the sale process was underway. The client initially considered splitting the hedging with another bank. Since this would have added to the potential uncertainty of managing the hedge, ANZ convinced the client to hand over the entire deal at the last minute, which meant the bank could bring all teams up to speed quickly and helped with the rapid execution of the transaction.

ANZ’s relationship strength meant the bank became aware of the strategic event early and could maintain continuous client engagement over an extended period, says Paul Scott, head of electronic forex products. ANZ maintained continuous engagement with the client and also ensured everyone at the bank was ready to execute in line with the client’s expectations. This was further complemented by partnering with the client’s traders to deliver the right outcome.

“ANZ’s ability to internally collaborate across teams and geographies highlights our competitive advantage around execution in tandem with risk management,” says Collins. “It came down to how you go about executing the trade in an illiquid market and, in addition to that, what type of risk management you overlay – what type of optionality, how do you drip feed that and how do you perform sensitivity analysis to see how the trade will perform. That got us over the line.”