Sales remuneration set for shake-up

The role of sales people in foreign exchange is set for a shake-up as platforms, brokers and industry utilities seek to compress costs and incentivise staff to bring in profitable flow rather than focusing on volumes alone, market participants have told FX Week.

One broker recently pulled its commission for sales people if the value of the flow they bring in is below the $2 per million threshold, while staff at platforms striving to gain market share are increasingly becoming similar to their counterparts in equities markets, according to sources.

"The volume game is finished and this trend is starting to show in the way sales people are compensated," says an industry source.

It's crazy we live in a world where we pay more for connectivity than for prime brokerage
Senior employee at a broker

Trading platforms are also under pressure to shrink costs as some players, including FastMatch and Hotspot, introduce aggressive measures to gain market share and ignite a price competition in the space where fees have remained stubbornly high.

"It's crazy we live in a world where we pay more for connectivity than for prime brokerage," says a senior employee at a broker.

Prime brokerage (PB) services typically cost $2 per million while connectivity costs range between $2 and $7 per million, depending on which venue the customer chooses to use. With more aggressive competition coupled with less flow making its way into the open market, the high fees are coming under pressure.

"It's true that connectivity is expensive compared with PB, but I don't think this is such a big issue at the moment. Ultimately, there are a number of providers out there with different offerings in terms of technology, operational capabilities and trading style, and it's up to the end-client to decide what they value and what they're willing to pay for," says a buy-side market participant. "In PB, there is no choice whatsoever."

The buy-side participant argued that once the integration fee is paid, connectivity costs become fixed fees that cover access to liquidity and services to enable operational efficiency.

No one does new connections to banks directly any more. They have no IT team and the costs are much higher
Salesperson at a buy-side market-maker

Another salesperson at a buy-side market-maker says ECNs are acting as de facto IT departments for banks as the sell-side struggles to shrink costs.

"No one does new connections to banks directly any more. They have no IT team and the costs are much higher," the salesperson continues. "We are a small organisation, and we have no intention of handling client on-boarding and connectivity ourselves when we can go to a venue that will do it for us more efficiently."

"I'm happy to pay for what I get from my ECN because it allows me to concentrate on trading, and then I can just go to my PB and say these are the positions, and I don't have to worry about errors or lost trades," says an end-client.