At first blush, much of the day-to-day function of an FX salesperson goes on as it did before the fixing scandals, say market players.
The post-scandal shift lies in their communication with clients while they are facing greater scrutiny on mark-ups from their largest clients. What’s more, a lack of clarity about the information and market colour FX salespeople can bestow to their clients has left some dissatisfied.
“Our daily routine is much as it was, although we are fielding more defensive questions on pricing from customers,” says a bank FX sales team member.
“Rather than spending time discussing market dynamics, we tend to refer to internal research experts and disseminate that information. Regulatory concerns mean information flow is more tightly contained.”
Mark Webster, global head of FX sales at Standard Chartered, says the bank has spent a lot of time talking to its sales people about how to they can communicate with clients with a focus on what is acceptable in terms of disclosure and market colour.
“What has been interesting in the last few weeks has been an increase in the number of clients coming to us and saying ‘this is how we want you to talk to us’ with a list of things they don’t want us to do,” he says. “However, I am confident that all these requests fall within our existing policies.”
According to Webster, concerns about rates are most evident among tied clients who are wholly reliant on the bank for rate information.
Andy Woolmer, managing director of New Change FX (NCFX), agrees, adding: “Opinions need to be considered very carefully.”
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Jim Cochrane, ITG |
Jim Cochrane, director of FX TCA at ITG, spent nine years as a senior FX sales representative to institutional investor clients. He prefaces his comments about the role of the FX salesperson by observing that the vast majority of fixing business is conducted on the last trading day in the month and that on any other day the amounts traded can be limited in comparison.
“The day-to-day responsibilities of an FX sales rep have not changed that much – they are still responsible for the overall FX relationship with their clients by providing trading and advisory services,” says Cochrane.
“With respect to the WM/Reuters fixing scandal, the rep had to resell their bank’s WM/Reuters London close fixing service to match the Financial Stability Board’s recommended practices. That is not a major change and on most days is a minor component of the FX salesperson’s daily duties.”
However, Cochrane also suggests regulatory demands have not necessarily limited the insights FX salespeople can – or feel they can – provide.
“Honest insights provided in a professional manner are not affected by regulation and the banks all have approved methods to offer market colour that have been in place for more than 30 years,” he says.
“For example, it is okay to say that the bank has a strong buying interest in the corporate sector, but not to pinpoint that corporate by industry or name. Unprofessional language and market rumours have never been approved, although new regulation and oversight will certainly curtail such practices.”
Cochrane refers to fewer conversations between buy-side participants and FX salespeople, and says the latter often appear uncertain about their role and what information they can share, leaving clients dissatisfied with the quality and delivery of the relationship-driven service.
“It seems we are in a situation where banks have salespeople, but they don’t entirely know what they are able – or supposed to be able – to do,” he says.
Justification
When asked how FX salespeople justify their mark-up to customers, one market maker observed that sales staff are under a lot more scrutiny from their largest clients, who are asking for explanations of the mark-ups being charged by the bank.
“Customers are asking for the time-stamps of trades that are executed and mark-ups are much lower,” says the market maker. “More experienced FX clients are calling in their orders and insisting on staying on the phone while they are placed so they can hear them go through, rather than waiting for an email confirmation.”
Many sales desks will make a price with mark-up, but the actual trade is executed by a dealing desk and customers are pushing to bridge this gap considering many feel that they have been let down by the service/price, adds Amarjit Sahota, director at Klarity FX.
“We haven’t seen any real evidence of in a reduction in market insight, other than communication of market orders and who may be doing what,” he says. “This type of market chatter has fallen, although it was already in decline.”
Depending on the customer, banks have pared down their mark-ups to the narrowest spread possible according to the client’s credit rating, volume traded, and consumed services such as analytics and research, adds Cochrane.
“Banks provide many services to their clients and must pay all the overhead costs that are associated with global banking,” he says.
“There is also the cost of the risk transfer price during a transaction. There are many strong arguments that the banks charge very little for the services that they provide and most customers understand this.”
Market shifts are also changing the role of FX sales.
NCFX’s Woolmer says while transparent service offerings make for more long-term, durable sales relationships, they have forced management teams to reassess how much money can be earned by an FX business.
“Many banks talk in terms of credit and credit costs to justify mark-ups, but it is clear that clients who choose to shop around can get good rates so that justification is a bit thin,” he says.
“The most interesting thing we have seen is a large asset manager moving away from multi-dealer or aggregation platforms to a couple of single-bank relationships with the NCFX live mid-rate used as a benchmark.”
The transparency and objectivity inherent in a benchmarked rate means that FX business can be tendered like any other service provision and the costs are set in stone over long periods, Woolmer concludes.
