In 2009, a dark period for the bank overall, CitiFX had been cast adrift from its main rivals, sitting in fifth position and 13 percentage points off the lead. With a federal bailout, a damaged credit rating, and no serious electronic offering, its position then belied its global footprint. Prasad had his work cut out. Three-years on, he says, CitiFX is competitive again. The introduction of its Velocity platform in 2010 has gained solid traction and provided it with record volumes. In 2011, spot volumes rose 40%, swap volumes rose 96% and outrights 29%. (Citi received $16 trillion in votes last year, though it maintains its real client volume was close to $21 trillion.)
“We have the volumes to win this survey,” says Prasad in an interview with EuromoneyFXNews. “If we get everything voted in, it’s in excess of $32 trillion this year.”
There has been an obsessive efficiency about Citi this year, as, with military precision, it has mobilized its 1,500-strong global FX team to reconcile its actual trading volumes with client votes, which, if they finish where they think they should, would see them jump four places, and close a market-share gap of 6.8 percentage points. It would be unprecedented in the recent history of the survey. (Euromoney vote count in 2005 was 4,712 compared with 13,039 last year.)
Interestingly, the biggest market-share variance during the past decade was in the 2005 survey, when Deutsche Bank increased its market share by 4.54%, to overtake UBS, thus commencing its now seven-year reign as the top FX house.
While Citi managed to keep poll position in its profitable corporate franchise (12.3% of total turnover in last year’s survey), its market share positioning has lagged in other client sectors. Last year, it was fourth with real money (17.2% of total volumes last year), fourth with leveraged funds (22% of total volumes last year) and fourth with bank clients (38% of total volume last year). It was someway short of where Prasad wants to be. “I’m looking to be the number one, number two player in all of them.”
Citi identified the bank segment as a weak link, and has done for several years, but Prasad says Citi has made important inroads in closing the nine percentage-point gap.
“That has been a big focus in terms of volumes,” he says. “The banks sector is something we started late, and we’re still building it up, particularly in EMEA, but it’s filling fast.” The banks team now numbers between 35 and 40 people globally.
Hedge funds, too, have been a segment where it lagged, with the gap between itself and top spot even wider, at 11 percentage points.
“We’ve identified certain leveraged players that we weren’t covering for whatever reason, and they may not necessarily be pure FX players,” says Prasad. “They may be crossover that were trading FX in addition to their core asset class. We are now covering those.”
However, is it enough to move the needle? According to Euromoney Market Data, the largest 5% of the hedge-fund community (55 out of 1,034) trade 73% ($16 trillion out of $22 trillion) of the total spot volumes traded by hedge funds.
Velocity 2.0
While all of this was happening, Citi was in the midst of a major rebuild of its single-dealer platform (SDP), Velocity. In what is surely the fastest platform rollout-to-upgrade ratio seen so far in the FX markets, Citi launched Velocity 2.0. to great fanfare in January, 18 months after launching Velocity 1.9.
It was no mere upgrade though. “This isn’t just a case of the same chassis and engine with a different body,” Prasad said at the time. “Developing Velocity 2.0 was done from the ground up, written in a new programming language, that we think makes it a lot faster than anything else on the street.”
His claim that price updates are 92 milliseconds faster than on any other SDP drew derision from some competitors.
As one head of e-trading at a leading bank laconically put it: “Saying you have the fastest GUI [graphical user interface] in the world is like saying you’re the world’s fastest lover.” The point being here, that the human eye can only register flickers on a screen at 250 milliseconds. Indeed, EBS, and several SDPs, throttle their GUIs to slow price updates to that level.
Prasad nonetheless argues that, aside from speed, 2.0 has two other key aspects that make it superior to other market offerings.
“One is the user experience,” he says. “Its usability is state of the art; it’s as easy as can be. Secondly, and most importantly, it’s more stable, and that is vital for it to be sticky with clients, to keep them there.”
Like several other market makers, Citi’s platform ran into difficulties in 2011 when market turbulence forced Velocity to hit its trip switch and cease making markets. He says the platform was down for about an hour, and that problem has been resolved with 2.0.
“We could have rolled it out faster, but we spent an extra two months working on improving its stability,” says Prasad. “It would absolutely hit that same trigger under a situation similar to the day of the SNB intervention, but it would be reset within a minute.”
Furthermore, Citi has created three separate versions of 2.0, one for each region. Now, if one goes down, another will immediately kick in.
CitiFX Access
Another key initiative in 2011 was the launch of CitiFX Access, its FX investment platform, which offers a range of opportunities for investors to get exposure to currency markets via currency managers, and to generate alpha.
It’s an attempt to take on Deutsche Bank’s dominance in this market segment, which it claimed last year to have a 70% market share. However, alpha-generated returns have been disappointing, and according to some measures, recorded their worst returns in two decades. Prasad’s strategy is to build for the future.
“For it to grow, FX returns have to be good,” he says. “FX returns haven’t been great recently, but we’ve built the infrastructure because it makes a lot of sense. It’s a business decision.”
Deutsche isn’t the only competition either. Morgan Stanley has also launched its FX Gateway product, though it is more exclusive, with only a handful of managers available, and an expectation that up to 15 will eventually be included.
Meanwhile, CitiFX Access offers an actively managed index exposure to around 35 managers, in conjunction with third-party index providers, such as BarclayHedge and Parker Global Strategies, as well as fund of funds Quaesta Capital. These 35 funds, Citi claims, account for more than 50% of assets under management in currency funds, across different strategies.
“The product is excellent, so once the macro-environment is clarified, the returns will improve, which will make the product attractive,” adds Prasad. “If you wait for the market to turn, then you are too late, because the guy with the best product will then have 80% of the market locked up.”
Prasad is keeping other initiatives under wraps for now. He peppers his conversation with references to disruptive technology, drawing analogies to how Apple has changed the way consumers interact with technology, and how Citi intends to do something similar in the financial markets.
“If you look at this business, there are all of those traditional areas of growth,” he says. “Now, that’s all very well, but what else can you think of? We have to ask: what haven’t we done yet that, in a highly commoditized, high-frequency world, will give us an edge?”
As voting for the Euromoney FX survey closed, Prasad hoped the military precision of its campaign has given it an extra edge in the battle of the FX flow monsters.
This article was originally published by EuromoneyFXNews.