Why relationships still matter in the global currency markets

For a bank to build a successful business in the US$7.5 trillion per day* global foreign exchange market it must combine cutting-edge technology with a personalised service to customers which recognises their unique requirements. 

Relationships were the bedrock of the industry in the 1980s and 90s, when most big currency trades were conducted over the phone, but the FX market was transformed in the early 2000s with the emergence of electronic multi-dealer trading platforms, which allowed clients to submit requests for price quotes to multiple potential counterparties.   

The advent of artificial intelligence and machine learning is set to herald another period of technological disruption.

“While technology continues to reshape our industry, the personal contact between financial firms and clients remains crucial,” says Shannon Leggett, Head of FX and Commodity Sales in Westpac’s Institutional and Corporate Group. 

“It's not just about providing tools - it's about educating clients on using these tools effectively and understanding the market's direction,” Leggett says.

Westpac looks to be getting the balance right, having been named FX House of the Year for Australia in this year’s Asia FX awards. The bank was also ranked first for both market share and relationship strength in Australia in the 2023 Peter Lee Associates survey for financial institutions. 

“Our FX distribution strategy is client-led,” says Gin Devoy, Head of Platform Distribution. “We focus on meeting them where and how they want to be met because we understand that each client is unique.”

Westpac’s team of experienced professionals, with specialised expertise across all sectors of the FX market, look to build strong relationships with customers by providing them with timely market insights and tailored trading strategies, she adds.  

Competitive pricing

Emma Norman, Head of FM Platforms, singles out the team’s work in developing an algorithmic trading solution, which draws on the bank’s internal data to optimise the execution of client orders.

“Our focus is on reducing the negative impact our execution can have on the market,” Norman says. “Our Liquidity Seeker Algorithm reflects this approach by leveraging our internal fill data to optimize the types of orders we use. This ensures a careful balance between minimizing the impact on market prices while also managing the risk of unfavourable price movements when filling orders passively.”

Westpac is also committed to developing the skills and expertise of its people to enable them to leverage the latest technologies and market insights. 

“This commitment enables us to deliver bespoke solutions and maintain leadership despite the presence of industry disruptors,” says Leggett. Just as important is providing clients with consistent tight pricing, even in times of volatility, she adds.

As a regional bank, Westpac operates in a time zone where liquidity is often strained and the bank has made it a priority to address this challenge. 

It has enhanced its offering of electronic FX products and services, as well as diversifying the client base, to maintain consistently competitive pricing.  

Westpac also makes use of its strong franchise in the Australian and New Zealand dollar markets to help manage the impact of client orders. 

For example, over 75 per cent of the bank’s A$ client flow can be internalised - whereby dealers match opposing customer flows in-house rather than unwinding positions in the interbank market. The number rises to 90 per cent for NZ$ flow. 

Looking ahead, Devoy says AI and machine learning have the potential to revolutionise how we understand and interact with market data, further enhancing access to liquidity for both the buy-side and sell-side and offering more precise execution capabilities. 

Even so, she is confident that clients will continue to rely on Westpac’s expertise to create bespoke, targeted market strategies.  

“Our edge in the FX industry comes from our continual innovation and the unparalleled quality of our team.” 

*Source: Bank of International Settlements 2022 Triennial Survey