UBS: an FX beacon in a sea of doubt

- By FX Markets Staff
- @FXMarkets_
- 15 Sep 2008

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The bank topped 14 out of the 23 currency categories - 10 wins ahead of second place winner the Royal Bank of Scotland - demonstrating that it continues to be a foreign exchange power house.

The past year's turbulent market conditions have cut across all derivatives markets, with FX options being no exception (page 2). In an interview with Risk, Fabian Shey, global co-head, forex and money markets at UBS in London said liquidity has dried up in the derivatives market over recent months. He said more and more banks are declining to quote in forex options, but added that there has also been a lot of client interest. "In our role as a bank market maker, things have become a little tougher because the liquidity has dried up to a certain extent and banks are declining to quote," he said.

He did however add that as forex is not an inventory business, it tends, as a result, to benefit from market crises and market volatility, as that increases client interest in it. "Banks with a client-driven forex business model will have benefited as long as they have the market-making franchise that can withstand this level of dislocation, uncertainty and volatility."

It should be interesting to see how the past 12 months have affected the leader board of the annual FX Week Best Bank survey, which concluded last Friday. Results will be announced at the awards dinner in London on November 18.

Comments? please email
saima.farooqi@incisivemedia.com

Letter to the editor:

I saw the Aite report last week.

The numbers are out.

A pure algo trader pays lower prime brokerage fees than they suggest and piggybacks off CLS volume benefits from their bank - thus also paying a bit less than stated.

Flex? True - they were multiples higher but have cut costs ... but then why would an algo trader use Flex when they can get aggregated direct market access from a bank for free?

ECN fee? For low volumes ... maybe the Aite number is right. But any reasonable algo trader will be paying less.

Algo execution from the banks? Usually in pips not US dollars, and Aite are too high again - though they are right that the market is split between those who believe in the stat analysis that proves the worth of algo execution, and those who prefer picking up the phone and getting a rate.

Prime brokerage fees vary from US$2.50 to US$12 - but the upper end is only for very high-touch clients with complex needs. Algo traders are down at the $3 or $4 level.

As CLS has volume thresholds, the more you do the cheaper it is. So algo trades can help reduce the overall bill of the CLS clearer - and they can thus be much cheaper. Then the US$1 ECN fees are similar to prime brokerage - $2 to $15 in the extreme - but algos are again at the very low end.

Algorithmic execution offered by banks is charged in fractions of a pip - as the purpose is to improve execution rates ... and thus fractions of a pip is more relevant. The numbers currently being used are several times higher than Aite stated.

Name withheld

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