After a year of challenges for the global FX market, the pace of change hasn’t slowed.
As with almost every other aspect of the global economy—including where and how we work, the macroeconomic implications of the renewed surge in the coronavirus infection rate and the resultant strain on the global supply chain—the repercussions of the pandemic have been a critical driver of the foreign exchange (FX) market.
One significant result has been higher inflation. The next steps taken by global central banks concerning monetary easing and interest rates will continue to play a critical role in the FX calculations of corporates, investors and trading desks in the coming year.
“It’s been a very singular year, dominated by the discussion around the expected behavior of inflation and whether it is temporary or persistent,” says Luis Martins, global head of FX and G-10 Rates at BBVA. The question of whether inflation is “transitory,” to use the term until recently favored by US Federal Reserve Chairman Jerome Powell, or whether it’s here to stay, will continue to dominate markets well into the year.
As with much of the financial industry, technology continues to shape the game, even for big players. Alexander Zozulya, senior managing director of Global Markets at Russia’s Sberbank, notes an increase in electronic trading with derivatives and FX options. He adds that the mobile trading of FX will probably continue to rise in 2022.
Digitalization in FX “will certainly continue to accelerate in 2022,” agrees Sergio Maza, regional head of Corporate FX Sales and Solutions for Latin America at Citi.
New faces in the sector will be pushing some of that. “We’re going to see a lot more competition from fintech players,” says an unnamed senior FX executive at a large Eastern European bank. The added competition will probably squeeze margins further, while perhaps also providing greater liquidity for clients.
Meanwhile, the rise of algorithms will continue in the FX markets. “Improvement in artificial intelligence–based algos will be of strategic [importance],” says Intesa Sanpaolo’s Santo Caristo, head of CIB FX Solutions. Similarly, Citi’s Maza says the “rise of the machines” and digitalization should help drive FX risk management.
Requirements to facilitate remote trading and working from home have been a significant factor in 2021. “We’ve seen strong advancement in the adoption of e-commerce channels by clients, as a result of their having to adopt working from home,” says Martins. He also sees that the pandemic’s work-from-home requirements have accelerated investment into FX trading infrastructure and cloud-based applications.
Remote working is a major challenge for all markets and FX, given the market’s fragmentation and the trading frequency, according to Zozulya. As a result, helping clients adapt to working from home and to hybrid working arrangements has gotten a big emphasis over the year, Maza confirms.
Volatility Here to Stay
There has been a sharp dichotomy between the more-developed and less-developed markets with respect to FX volatility throughout 2021. This is likely to persist into this year.
Less-developed markets experienced unusually sharp volatility in FX. “Anytime that we have uncertainty, we have volatility,” explains Chief Product and Network Officer Steven Marshall, of emerging and frontier markets specialist Crown Agents Bank.
And 2021 was characterized by uncertainty over the pandemic’s economic impact, the fragility of the global supply chain and the inflation outlook, he says. Moreover, in smaller frontier markets, factors such as the flow of tourism revenue that are a vital source of hard-currency inflow can pressure regional FX markets.
Meanwhile, sources of liquidity for end clients in emerging and frontier markets may become scarcer as global and regional banks take a more pessimistic view on emerging market economies and continue to derisk their balance sheets. Many prominent global players, according to Marshall, have closed correspondent bank relationships and moved to limit credit exposure in recent months.
He warns that one risk likely to “loom quite large” in coming months for frontier FX markets—and those who have exposure to them—is the increasingly probable default on government debt by a handful of vulnerable economies.
Emerging and frontier market broker Tellimer points to Sri Lanka and Ethiopia as two candidates to default on their debt in the coming months.
In terms of volatility, it’s going to be more of the same—and then some—in 2022, according to Martins. “Emerging market volatility will be an even bigger challenge,” he says, pointing to the likelihood of inflation and probable higher short-term interest rates increasing hedging costs.
Despite the macro-level uncertainty of the pandemic and the intentions of the US Federal Reserve and other central banks, it has been another story for developed market currencies.
Intesa Sanpaolo’s Caristo says that 2021 was a “very low volatility year” for G-10 currencies in particular, and that clients have been doing less strategic long-term hedging activity compared to the previous year. However, he sees that in the coming year, corporate clients will accelerate their hedging because of greater confidence in their business strategies and greater visibility on currency flows that need to be hedged.
Through it all, the US dollar looks likely to maintain its global FX market dominance in 2022. According to the Bank for International Settlements’ General Manager Agustin Carstens, nearly 90% of all FX transactions globally involve the dollar. This is partly because of the “self-reinforcing nature” of the dollar’s preeminent status.
However, the dollar has been the go-to currency, the dominant player in FX markets, and the foreign reserve currency most held by the world’s central banks for close to a century. Over the past 500 years, a currency’s dominance has tended to last around 80 to 110 years, whether it was Portugal’s real of the 16th century or British sterling of the 19th and early 20th centuries. Although there are no pretenders to the dollar’s throne, “dominant currencies can and do change,” Carstens warned in an October 12 speech to the International Monetary Fund and several regional financing arrangements.
Then there’s the wild card of cryptocurrencies and how they’ll impact FX markets—as well as the entire finance world. With many of the world’s central banks still mulling how to handle the regulation of cryptocurrencies, this year may be a watershed. What’s more, several central banks will probably move forward into the brave new world of digital currencies.
“The ongoing discussion around digital currencies in general and central bank digital currencies in particular is bound to continue and potentially accelerate,” says BBVA’s Martins. He points to various working groups that have been formed to explore the idea and the increasing investment by private banks in the crypto arena in anticipation of the gradual shift to the mainstream of Bitcoin and other cryptocurrencies.
Whatever FX markets have in store for investors, though, the second annual GW Platt Foreign Exchange Provider Awards winners are here to help. Global Finance honors global, regional and country winners: corporate and financial institutions, the banks that offer the best FX research and analysis and those that are best with FX trading technology.
Methodology: Behind the Rankings
Global Finance selects its award winners based on objective factors such as transaction volume, market share, competitive pricing and global coverage, as detailed in public company documents and media reports.
Our criteria also include subjective factors such as customer service and technology innovations, using input from industry analysts, surveys, corporate executives, consultants and technology experts. Although entries are not required in order to win, our decision-making is informed by submissions that provide additional insight.
BEST GLOBAL FOREIGN EXCHANGE BANK
World presence, local specialization is the model behind BBVA’s outstanding performance in the foreign exchange (FX) market of 2021. With global capabilities from all its locations, including trading and sales hubs on four continents, the Spanish giant generated an approximate $1.5 trillion in global FX volume for the year.
“BBVA is greatly honored to receive Global Finance’s Best Global Foreign Exchange Bank award for 2022,” says Pedro Alier, head of Strategy and Business Development, Rates and FX at BBVA. “This represents an incredible recognition of our decade-long continued effort investing in a technological and execution platform for our clients across segments and across geographies.”
As the world has reopened from the pandemic, supply chain disruptions have become ever more frequent, leading to increased currency-related risks. In such a volatile environment, BBVA’s award-winning global task force has played a critical role in helping corporates mitigate those risks worldwide, providing outstanding analytical and trading support.
Through its digital platform, BBVA allows customers to trade various products in all G-7, Scandinavian, CEE, Asian and Latin American currencies. Notably, the bank’s security has also been a cornerstone for its clients, maintaining a specific governance structure to ensure long-term compliance with the FX Global Code of Conduct.
“BBVA is an FX leader within its broad banking footprint in servicing its local clients, as well as bringing these core FX capabilities to global clients through its presence in the global financial hubs of Europe, the USA and Asia,” adds Alier.
BEST FX PROVIDER FOR CORPORATES
Societe Generale’s corporate FX suite comprises offerings across the full spectrum of FX products—ranging from electronic FX liquidity provision to bespoke risk management solutions.
Currency expertise covers FX spot trades, forwards, nondeliverable forwards (NDFs) and swaps, as well as exotic and vanilla options on almost all major currency pairs.
Given its historical presence and its vast geographic network, Societe Generale is particularly well placed to assist with African markets. The bank is a top 10 player in G-10 currencies and has a significant footprint in Western Europe. In addition, it is a leading liquidity provider in five CEE currencies and several emerging market currencies from around the globe.
Societe Generale’s SG Markets digital platform includes multidealer and direct application programming interface (API) connections via a single-dealer platform that offers multiasset trading capabilities. It also sports many pre- and post-trade services, such as MyHedge, which permits clients to manage their FX risks and check the hedging strategy’s efficiency according to various market move scenarios in real time.
The platform also includes a wide variety of currency-hedging services that the bank designed to eliminate or mitigate fluctuations in currency prices, depending on management objectives. Services include hedging calculation and execution, configured according to the client’s guidelines, such as hedging ratio, roll frequency and netting option.
Societe Generale additionally provides several sustainability FX solutions, including Hedge to Pledge, with which clients can round up their FX trades and donate the difference to charitable organizations; sustainability-linked derivatives where Societe Generale and the client agree to include sustainability-linked triggers in a derivatives deal; sustainability FX algorithms and socially responsible lending.
BEST MARKET MAKER IN VOLATILE TIMES
Bank of New York Mellon
Trading volumes in major asset classes increased during the early days of the Covid-19 pandemic; as money managers for pension funds, mutual funds and other institutional investments sought to rebalance their portfolios, hedge risk and adapt to a volatile and ever-changing environment. To help meet this demand, market makers, such as Bank of New York Mellon (BNY Mellon), looked to provide the necessary liquidity across the range of asset classes.
As one of the world’s largest custodial banks, BNY Mellon has a distinct perspective on foreign exchange and can provide access to a liquidity pool and community of trading counterparties unique among FX liquidity providers. With $41.7 trillion in assets under custody as of the second quarter of 2021, BNY Mellon includes more than 100 markets in its network, enabling clients to extend operations with access to global clearing, custody, accounting and treasury, collateral management and wealth management.
Favoring resilience through digitalization, the bank is in the midst of an ongoing transformation to deploy an open architecture that efficiently and seamlessly connects clients with products and services.
In February 2021, BNY Mellon announced a collaboration with Google Cloud to help market participants better predict billions of dollars in daily settlement failures, generate significant capital and liquidity savings, and unlock operational efficiencies, thus improving the bank’s clearance and settlement capabilities in the US treasury market.
“We are excited to work with Google Cloud to develop a first-of-its-kind solution to help our clients predict approximately 40% of settlement failures in Fed-eligible securities with 90% accuracy,” Brian Ruane, CEO of BNY Mellon Clearance and Collateral Management, said at the time. “A settlement failure occurs when a buyer and seller fail to exchange cash and securities by the close of business on the scheduled settlement date. This prediction model could be a game-changer for market participants and is a tremendous showcase of how we are leveraging emerging technologies, such as the public cloud, to accelerate the delivery of meaningful solutions for our clients.”
BEST LIQUIDITY PROVIDER
As one of the largest global banks, HSBC provides global liquidity offerings to help corporate and individual clients gain access to a range of funding, deposit and investment products that operate in full compliance with local and international banking and financial service regulations. Over time, HSBC has integrated these services with the bank’s enterprise resource planning and treasury management systems.
In March of 2021, HSBC integrated Active Placement, which is an automated multimanager liquidity and investment tool, to the bank’s Liquidity Investment Solutions (LIS) platform. The addition enables HSBC clients to improve the efficiency of their cash-flow management. Meanwhile, the LIS platform enables clients to invest and redeem excess cash across different investment options, including HSBC Global Asset Management Group money market products and money market funds from other asset management institutions, such as BlackRock, Goldman Sachs and J.P. Morgan. The new LIS platform capability provides HSBC’s corporate and institutional clients with an additional mechanism to enhance their corporate governance control.
BEST FX PROVIDER FOR EMERGING MARKETS CURRENCIES
Crown Agents Bank
Crown Agents Bank (CAB) offers competitive pricing with more than 100 frontier, emerging and G-10 market currencies and more than 500 currency pairs. The bank has seen its overall FX trading volume grow at a 22% compound annual growth rate.
In 2017, the bank introduced its EMpowerFX offering, which provides clients with real-time, direct access to competitive FX pricing and execution capabilities across all major traded currencies and emerging market currencies.
Continuing the march of FX innovation, CAB’s parent company, CABIM, acquired New York–based fintech Segovia Technology in 2019 to strengthen its frontier markets payment platform. Integrating Segovia’s payments infrastructure with CAB’s FX capabilities enables cost-effective FX straight to mobile money accounts and initial DEX offerings—fundraising lifelines for nongovernmental organizations that provide aid to people in need.
CAB recently moved to API-led connectivity. One API enables an in-house sanction screener that can handle a high volume of small transactions without increasing the risk of money laundering. As a result, the bank can now safely process 1,900 transactions in five minutes, greatly assisting its expansion into new markets.
BEST FX PROVIDER FOR FRONTIER MARKETS CURRENCIES
EFG Hermes established a strong franchise in serving frontier market currencies and financial transactions. It has an on-the-ground presence in the Middle East and North Africa, sub-Saharan Africa and Asia, offering high-quality services to retail, high-net-worth and institutional clients looking for opportunities in frontier and emerging markets.
The bank executes transactions in more than 75 frontier and emerging markets and covers 95% of the MSCI Frontier Markets, and the MSCI Emerging and Frontier Markets indexes. The bank now has a solid presence in Nigeria, one of the largest frontier markets globally, following EFG Hermes’ expansion over the last few years.
Recently, the firm completed its transformation into an Egyptian universal bank with a market-leading frontier and emerging markets investment banking platform. The status change follows a purchase of a 51% stake in the Arab Investment Bank. As part of its geographical expansion, EFG Hermes has established a physical presence in Pakistan, Bangladesh, Vietnam, Kenya, Nigeria, the UK and the US to support its frontier markets currency and investment activities.
With access to liquidity and funding, EFG Hermes can capitalize on increased activity by investors, particularly in Nigeria, Kenya and Pakistan. The bank was also able to increase its market share of foreign inflows into Vietnam. Its ability to cross-sell its expanding network of financial services in frontier markets has strengthened its FX provision.
The bank has enhanced its well-regarded trading platform to provide a broader range of brokerage services, including a fully digitalized on-boarding process and a digital payment gateway.
BEST ESG-LINKED DERIVATIVES
Bank of China
The Bank of China (BOC) ended the year securing the top spot of financial data provider SuperFinance’s 2021 ESG Ratings Report and beating out other leading Chinese banking institutions.
To support the Chinese government’s commitment to carbon neutrality by 2060 and to expand China’s global ESG influence, BOC has issued a series of green bonds to the international market in the past few months.
On October 27, 2021, BOC’s London branch issued the world’s first sustainable-development relinked bond of $300 million with a three-year term. The bond’s proceeds will be used to finance and refinance eligible sustainability-linked loans from the bank. Moreover, the interest on these loans is adjustable upon completing the agreed ESG performance target.
The bank’s Macau branch issued the world’s first-ever “biodiversity-themed” green bonds denominated in offshore renminbi and Macau patacas in September 2021. The issuance raised 1 billion renminbi ($155 million) and 1 billion patacas ($125 million), each with two-year terms. The proceeds of these two bonds will be used to finance and refinance eligible biodiversity-related green projects. Additionally, the offshore renminbi green bond issuance indicates that ESG will likely become a powerful driver to promote Chinese renminbis’ internationalization.
BEST FX COMMODITY TRADING BANK
Strategically positioned in the commodity trading business, with operations mainly based in Latin America, BTG Pactual provided top-tier analysis and financial services to corporates, investment funds, governments and retail traders in 2021.
BTG also holds global commodity operations through its Luxembourg-based subsidiary Engelhart, which has 13 offices in six countries on four continents.
Commodities surged in 2021 to the highest combined price in a decade, while Latin American currencies witnessed widespread declines. That divergence resulted in record profitability for various companies by making the region’s exports far more competitive in the global scenario.
But it also presented singular challenges for corporates, as the relationship between commodities and the continent’s currencies—and with the dollar—reached its furthest point in history, according to S&P Global. This was a unique scenario that BTG tackled outstandingly by providing short- and long-term currency and inflation-indexed contracts as well as the necessary analytical support.
Another important product of BTG is the Teva Acoes Commodities Brasil ETF, an equal-weighted Brazilian commodity basket that allows the region’s corporates and investors to mitigate seasonal risks by trading (or hedging) commodities as a group.
BEST TRADE FINANCE FX
International trade brings currency risks, and Citi’s Treasury and Trade Solutions help clients meet global import and export needs—processing some $3 trillion in daily transactions in 160 countries, involving 140 currencies. To help clients manage their liquidity, Citi helps them move, manage and invest funds in 100 countries by assisting clients with subsidiary financing, intercompany netting and capital preservation.
Trade finance tools can eliminate FX risk by ensuring that corporates receive payment immediately rather than on the deferred terms offered to buyers. Sales and receivables finance can also play an essential role in mitigating FX exposure. Longer payment terms necessarily expose companies to FX volatility, which is increasing due to expanding geopolitical uncertainty. Citi’s Supplier Finance program supports a company’s suppliers’ financing needs while ensuring uninterrupted supply flow and improving working capital through longer payment terms.
Citi’s trade loans, meanwhile, provide a simple, cost-effective, short-term trade financing solution, available in local and foreign currencies, to provide liquidity to a supplier’s needs. Meanwhile, data aggregation across trade, cash management and FX provides Citi with an opportunity to deliver data-driven insights for its corporate clients and their trade-financing needs.
With the opening of regional economies after the lifting of strict lockdown measures, Standard Bank, the winner as Best FX Provider in Africa, is seeing FX order flow tick up across the continent and expects the recovery from the pandemic to increase that volume.
Across the 20 African countries it serves, including Namibia, Senegal, Kenya, Botswana, Zimbabwe, Tanzania and others, the bank connects clients, specifically in agriculture, with Chinese importers and helps unlock further FX opportunities. In Angola, one of its strongest African FX markets outside South Africa, it trades with international oil companies and the mining sector, two key industries that account for more than 40% of the FX sold on the market.
Between 2017 and 2021, Standard Bank has delivered $750 million in FX purchases, processed over 72,000 payments and built up a base of 100,000 users for its Shyft mobile FX application. The bank has also bumped up the technological capabilities of its eMarketTrader and eMarketTrader Mobile platforms. The improvements permit clients to hedge currency exposures, track currency movements and trade spot and forward exchange contracts. The bank also provides risk-mitigating financial products, including buyer payment and supplier performance risks, such as letters of credit and FX guarantees.
Australia & New Zealand (ANZ) Banking Group has been one of Australia’s leading FX solution providers for Australia, New Zealand, and the Asian-Pacific region, with operations across 30 markets in Asia, Europe, and North America. With daily execution volume exceeding AUD3 billion in FX spot trading, ANZ has retained its leading position as FX provider to the largest corporate companies across Australia and New Zealand. The bank has been the recipient of various FX awards as no. 1 of FX market share in Australia for ten consecutive years, the first ranking of the Relationship Strength Index in New Zealand since 2004, as well as the no. 1 ranking of several key financial indicators in both Australia and New Zealand in the first half of 2021.
Two unique FX services have attracted clients and ensured its competitive advantage as a FX leader. ANZ FX Overlay, a one-stop, cost-efficient, and fully transparent hedging platform launched in 2018 provides a systematic comparison of consolidated life performance data against benchmarks across the entire ANZ platform. FX Overlay’s operational efficiency reduces ongoing fixed costs with full transparency in hedging execution and methodology, which satisfies client needs and custodial requirements.
A self-service algorithmic e-trading system developed internally distinguishes the bank’s liquidity management capabilities, and substantially reduces clients’ execution costs.
Today, with the global banking sector facing challenges caused by sustainability transformation, ANZ will continue acting as a regional leader to contribute to the metamorphosis of the banking industry and green finance transformation in Australia, New Zealand and the region.
CENTRAL AND EASTERN EUROPE
Societe Generale (SocGen) operates in 13 countries throughout Central and Eastern Europe (CEE), a footprint that allows it to offer an extensive range of FX products and lends it a strong competitive advantage. Among its capabilities in the region, SocGen offers FX spot trades, forwards, nondeliverable forwards (NDFs) and NDF swaps with exceptionally deep liquidity and long tenor. Through its single-dealer and multidealer eFX platforms, the bank provides clients with the option of multiasset execution.
SocGen supports all of its products with comprehensive research that deliver regular strategic insights as well as frequent updates on the macro and fixed income context of the region and the rest of the world.
The bank has local platforms and an international branch network in four CEE countries, with its largest presence in Russia, where it owns Rosbank. The Central Bank of Russia has listed Rosbank as one of the nation’s 12 most systemically important credit institutions and a significant player in the Russian market. Meanwhile, in Poland, SocGen offers an expansive range of FX products to its nearly 500 Polish and multinational clients. The bank also is the third-largest bank in Romania by assets and one of the top three banks in the Czech Republic, with a full menu of eFX offerings from spot trading to exotic options.
SocGen is well positioned to continue to offer exceptional FX service to clients in CEE, with an industry-leading presence and platforms.
Qatar National Bank
With a significant regional and international presence, Qatar National Bank (QNB) provides clients distinct competitive advantages in FX, cross-border transactions and trade flows. The bank has a presence in 31 countries, including 20 countries in the Middle East and North Africa. In addition, QNB includes notable subsidiary banks in Egypt and Turkey, among others, and holds large stakes in banks in the UAE and Jordan. With such a vast footprint, the bank can provide correspondent and FX banking services where counterparts require local expertise.
QNB has significantly enhanced its FX and treasury operations via investments in the market and post-trade processing platforms. As a result, it has led to a more seamless digital experience for clients.
The bank recently launched a remittance service developed in partnership with blockchain-based payment provider Ripple. The service will further improve QNB’s already innovative cross-border payments infrastructure and expand its remittance service across multiple countries, delivering near-real-time payments at lower cost.
In 2020, the bank also rolled out robotic process automation across its treasury operations and introduced its Trade Portal platform to facilitate trade finance transactions. The portal provides integrated e-business capabilities that seamlessly complete international trade transactions for importers and exporters. Additionally, QNB and group banks, such as QNB Finansbank, offer the Swift Global Payments Innovation, which provides corporates faster international payments with more transparency.
The continued focus on digitalization by Citi has enabled clients to achieve greater control of the entire FX risk management process. Citi’s flagship corporate platform, CitiFX Pulse, features a comprehensive suite of modules, from pre-trade research and analytics to local market execution and post-trade transaction-cost analysis. Integrating systems using the CitiFX Gateway application programming interface allows clients to automate their FX processes fully. At the same time, CitiFX Pulse’s Scheduler provides users the flexibility to stage orders directly from their execution management system for automatic local market execution at a specified time. CitiFX Pulse provides visibility and automation as well as permitting clients to access local market execution across 80 countries where Citi has a local presence.
For professional investors, such as hedge funds, asset managers, banks and other financial institutions, Citi Velocity provides a single platform to deliver execution across foreign exchange cash and options, interest rate products, futures and commodities.
During 2020 and 2021, Intesa Sanpaolo’s IMI Corporate and Investment Banking Division (IMI CIB) managed the FX exposure for approximately 700 companies worldwide. At the same time, the bank sought to diversify its portfolio of clients by on-boarding those who were less affected by the pandemic and could invest more, enabling Intesa Sanpaolo to carry on advising its other corporate clients on their commercial needs.
The IMI CIB FX team developed a quantitative method to manage market timing for new clients who need to manage their long-term exposure. Meanwhile, the team expanded the currencies it supports.
Intesa Sanpaolo’s FX electronic brokerage platform, Market Hub, provides dedicated offerings that let clients trade in the spot, forward and swap markets available through the bank’s multidealer platform or via its Inbiz Forex and Greentrade single-dealer platforms. The electronic service is backed by a dedicated desk covering over 100 currency pairs, spot and derivative quotes and complementing voice execution services.
IMI CIB offers both corporate and financial institutions a wide range of customizable tools and services to manage financial risks, including assistance throughout the implementation of hedging strategies. One feature offers a green hedging capability, which aligns with ESG-based rules.