HSBC targets the top spot in FX and takes RMB title

HSBC wants to be the number-one bank in foreign exchange. The vast banking giant has always been a top-tier player in currency markets, thanks to its roots in global trade and footprint in Asian markets, but it lacked the e-trading prowess and distribution systems that some of the very best had early on. As the centre of gravity, in macroeconomic terms, shifts to the East, the bank is intent on rectifying this.

"We are confident that HSBC has the potential to be the number one or two player as an FX house and [we are] determined to achieve this aspiration. The essence of HSBC's business is to connect clients with opportunities across the globe and this is as true today as it was when the bank was founded," says Richard Bibbey, global head of FX cash trading and risk management at the bank.

HSBC has made a substantial investment in its distribution capabilities and risk systems this year, as part of an ongoing plan to revamp its electronic systems, which began four years ago, and it has delivered two algos to clients in the past six months.

A number of our competitors have strong electronic businesses, which we have already targeted as a relative growth rate area for HSBC
Richard Bibbey, HSBC

"A number of our competitors have strong electronic businesses, which we have already targeted as a relative growth rate area for HSBC, and where we already see ourselves producing excellent results in the e-space and continuing to gain ground in the rankings in the near term," Bibbey says. "We are delighted with what they have already brought to the business, in the knowledge that this is an invaluable and productive tool that will provide a first-class platform going into 2017."

At its heart, HSBC's core strategy is to build long-term relationships with clients. This is something that differentiates it from its ultra-competitive, non-bank liquidity provider (NBLP) peers, says Bibbey, while noting their growth has been a major theme in 2016.

"Although non-banks' liquidity providing competitors do not have the same cost base, banks have the very distinct advantage of client footprint and the capacity to service customers throughout the globe across a comprehensive product range," he says.

Chinese competitors

While Bibbey is unfazed by rising competition from NBLPs, he highlights the Chinese domestic banks as serious competitors.

"The renminbi provides hugely exciting prospects and we have already seen massive growth in the electronification of the offshore market. As the market becomes increasingly electronic, there will be huge opportunities and corresponding increased competition as this specialisation continues to expand," he says.

"Chinese domestic banks have already shown their competence and competitiveness, and will continue to be strong. [But] HSBC is the largest foreign bank in China, where we bring the ability to service the ever-growing client base in both the domestic and international markets," Bibbey adds.

Hossein Zaimi, head of trading for Asia-Pacific, acknowledges the importance of the size and shape of HSBC's client franchise in noting that its edge as a market-maker in the renminbi is its ability to manufacture prices more efficiently.

We have built a very strong position in RMB, because we have a huge internal liquidity pool as a result of our global client franchise
Hossein Zaimi, HSBC

"We have trade flows in every segment of the market and across geographies, and the fact we have uncorrelated flow allows us to match client trades more efficiently than relying on interbank liquidity, which means we can offer better prices at a lower margin. It also means we can minimise the information leakage for clients, especially for large trades," Zaimi says.

"Over the last 12 years, the renminbi has become a currency of core focus for the bank. We have built a very strong position in RMB, because we have a huge internal liquidity pool as a result of our global client franchise," he adds.

With China on the cusp of opening up its economy and capital markets, market participants expect an explosion in the size of the market and in terms of activity. As the largest bank in Asia, HSBC has been there from the start.

"Foreign exchange is very much a core activity. It's what we do, and we have been able to invest in the business despite the difficult overall backdrop," Zaimi says.

"We will continue to cover clients in all aspects of the RMB and we will continue to invest in our electronic offering. We are a large custody bank in China, which means we have the onshore leg, the offshore leg, and also the execution capabilities required to be a consistent and reliable liquidity provider and price-maker in the renminbi," he adds.

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