Best Banks Awards: Standard Bank

The importance of a large domestic franchise is impossible to overstate, especially when talking about being a market-maker in African currencies. Of these 57 units, only the South African rand has sufficient liquidity and activity to be classified as an emerging markets (EM) currency, while the others fall into the frontier category.

This makes liquidity provision in African currencies a tricky business, especially as the ability of banks to internalise customer flows is much more limited than in G10, where the largest dealers can internalise as much as 95% of volumes.

“To be able to provide bids and offers to the market globally, and on a 24/5 basis, we need to do two things: we need to deploy best-of-breed technology; and we need to internalise as much as we can while providing balance sheet to the market by warehousing risk,” says Richard de Roos, global head of foreign exchange at Standard Bank.

Being able to skew prices and provide liquidity in a fast moving digital world is challenging enough in the most liquid of currency pairs, EUR/USD, but in EM and frontier currencies there are scant opportunities to recycle liquidity, simply because there isn’t enough of it.

Instead, to price currencies, dealers need a diverse source of real flow – domestic market participants as well as offshore players.

Standard Bank, which has been voted the winner of the Best Bank for South African Rand and Best Bank for African Currencies excluding ZAR at the 2018 FX Week Best Banks Awards, has a presence in 18 countries on the continent and an outpost in London.

In each of the countries in which we operate, we have a centre of excellence and pricing to ensure we’ve got the expertise and knowledge of those currencies

Richard de Roos, Standard Bank

The London office is a joint venture between ICBC and Standard Bank. ICBC China has a 30% stake in the Standard Bank group and a 40% share in the London entity, dubbed ICBC Standard Bank.

“ICBC Standard Bank plays a large part in distributing African products to global markets, and it provides access to liquidity in African FX to European corporates and multinationals,” says de Roos.

The London entity also has direct access to real-money players, hedge funds and multi-nationals running their treasury operations from Europe or the US. Domestic clients are predominantly large multinationals – corporates ranging from large domestic firms to small and medium enterprises – but individuals and other banks are also clients.

“External flows are almost as big, and sometimes bigger, than domestic flows. A lot of non-African banks trade African FX with their underlying clients, so there are a large amount of those banks trading directly with us. We also provide liquidity into a number of larger bank aggregators for the African currency pairs, so we source our business on that basis,” adds de Roos.

Domestic dealing

But domestic presence is a key differentiator for the bank, which operates separate dealing teams in 20 of its African centres, as well as a G10 desk based in South Africa. This means the dealer prices the Kenyan shilling from Nairobi and the Nigerian naira out of Lagos, which work together with the G10 desk to triangulate prices if necessary.

“In each of the countries in which we operate, we have a centre of excellence and pricing to ensure we’ve got the expertise and knowledge of those currencies, but also the ability to internalise the flow that we see on both sides of the market in one single place, rather than splitting it up and weakening our internalisation opportunities,” says de Roos.

But there are big differences between pricing the South African rand, which occasionally behaves like a G10 unit and sometimes as an EM currency, and frontier units such as the naira in Nigeria.

“When you get to currencies like the naira in Nigeria you are often not so much a trader, as a broker of liquidity which is a different way of looking at liquidity,” de Roos says.

In the naira, liquidity sometimes only enters the market when the country sells oil or when the central bank decides to provide liquidity to the market. In these situations, domestic players become active and queue up to access liquidity.

“Physical markets are often paralleled by a non-deliverable forward (NDF) market, and what we try to do is run NDF mean reversion between our onshore positions and our offshore positions, as and when there is an opportunity,” de Roos says. “It’s really about being able to use what we can do where possible.”

While the bank has made it an essential part of its strategy to be a risk-warehousing entity, providing liquidity to clients and the market, frontier currencies require a completely different mindset and skills.

“We differentiate ourselves by being able to – whenever possible – make a price and provide liquidity in even non-liquid markets,” says de Roos. “We will continue to pursue our strategy of becoming a super-regional bank in Africa and we feel we’re making good progress.”

Interviews with the 2018 FX Week Best Banks Awards winners

JP Morgan

Best Bank Overall for Foreign Exchange Dealing

Best Bank for FX for Banks

Best Bank for FX for Investors

Best Bank for Spot FX

Best Bank for FX Forwards

Best Bank for EUR/USD

Best Bank for USD/JPY

Best Bank for EUR/JPY

Best Bank for E-Trading

Citi

Best Bank for FX for Corporates

Best Bank for Currency Options

Best Bank for Structured Products

Best Bank for FX Prime Brokerage

Best Bank for FX in North America

Best Bank for Emerging European, Middle Eastern and African Currencies

Best Bank for FX Research and Strategy

HSBC

Best Bank for FX in Asia-Pacific

Best Bank for Renminbi

Best Bank for Emerging Asian Currencies

Deutsche Bank

Best Bank for FX in the Eurozone

ANZ

Best Bank for Australian Dollar

Barclays

Best Bank for GBP/USD

Best Bank for EUR/GBP

Best Bank for FX in London

UBS

Best Bank for Swiss Franc

NatWest Markets

Best Bank for FX Post-Trade Services

360T

Best Professional e-Trading Venue

Best Vendor for Dealing Technology

Refinitiv

Best Broker for Forward FX

Best Broker for Emerging Markets FX

LCH

Best FX Clearing House

EBS

Best Broker for Spot FX

Bloomberg

Best Market Data Provider for FX

Danske Bank

Best Bank for Scandinavian Currencies

Standard Bank

Best Bank for South African Rand

Best Bank for African Currencies excluding ZAR

BMO Capital Markets

Best Bank for Canadian Dollar

Banco Santander

Best Bank for Emerging Latin American Currencies

kACE

Best Vendor for Risk Management/Options Pricing Software

Saxo Bank

Best Prime-of-Prime House

BGC (no interview)

Best Broker for Currency Options