First-mover banks in the Gulf region have already migrated to FX electronic trading platforms to help them stay close to the market — and to increase profitability and improve customer satisfaction. The big question remains just how long it will take for the rest of the region’s banking market to follow suit and invest in electronic trading.
- Around the world, banks are embracing digitalization. How are banks in the Gulf region keeping up with the trends in FX electronic trading to improve efficiency and boost revenues?
- To implement FX electronic trading platforms, Gulf region banks need access to affordable supporting technologies and vendor expertise.
- First movers are encouraging other banks in the region to follow suit by enhancing internal workflows and streamlining pricing, which will filter down through the system.
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As digitalization of the global banking system continues at a pace, banks in the Gulf region are increasingly adopting technology in order to increase efficiency across all disciplines.
However, FX is a major contributor to a bank’s revenue because of the large volume of money transfers, the number of expats living and working in the region, and the increasing number of trades.
The result is a rapidly growing interest in FX electronic trading that has accelerated at a pace in recent years.
Streamlining their FX price distribution through a single electronic platform enables banks to be closer to the market.
It gives banks easier client access to a price via multiple channels, greater control in pricing, transparency, and the ability to price more efficiently — further advancing their digitalization goals.
For market-making major financial institutions, electronic trading is not only an important offering, it is an essential part of their long-term digital strategy.
Delivering a reliable FX trading offering
The adoption of FX electronic trading in the Gulf region has grown exponentially as banks are leveraging electronic prices to get access to deeper liquidity and tighter pricing.
Electronic pricing also gives banks a range of trading tools such as orders, algos, and pre- and post-trade workflow — as well as enabling them to offer after-market-hours trading. And at the same time, banks’ clients have started to favor electronic trading. In addition, banks are better managing their risks by not having to manually hedge positions.
Refinitiv FXall data for financial institutions in the Middle East and North Africa (MENA) region shows that FX electronic trading has increased by 360 percent in the last five years to Q2 2020.
In context of the macroeconomic backdrop, while GDP growth in the MENA region was 1.8 percent in 2019, the impact of the COVID-19 pandemic is expected to reduce the comparable figure for 2020.
While banks in the Gulf region may be strategically motivated to start fully migrating to FX electronic trading, only a select number of them have already fully adopted electronic trading.
As some of those banks are spearheading technological innovation, FX is a high-profile use case that motivates them to invest in FX electronic trading. It generates profits on top of introducing improved customer service for clients that want to request quotes, improves efficiencies, and drives competition in the FX trading market, giving first-mover advantage to those that have made the investment.
Given the fast-emerging nature of the market, banks are playing a leading role in supporting their clients to adapt technology further and leverage technological trends to ease the process of doing business.
It is important to highlight that top global and regional FX market-makers provide competitive rates to electronic trading as vital providers of liquidity.
Overcoming the obstacles to growth in the Gulf region
In order for banks and financial institutions to make structural changes to implement electronic trading platforms, they need to have access to affordable supporting technologies that enable this shift.
Banks also need access to expertise from vendors to support their digital journey who can help them to implement best practice. Many banks essentially need to change their approach from traditional workflows to new, enhanced workflows.
As electronic trading is platform-agnostic, it can be integrated through different technologies, even with legacy systems. Given the scalability electronic trading provides, integration can proceed in line with clients’ business priorities and system readiness.
Electronic trading can be integrated with bank systems through a bank’s existing middleware.
The most commonly used messaging format in the Gulf region is XML. Other technologies that feature in integrations include IBM MQ/JMS Queue, Web Services, FTP/SFTP, databases compatible with JDBC, and File System.
The following case study illustrates how one bank in the Gulf region worked with our teams at Refinitiv to upgrade to a multi-channel FX electronic trading platform in less than a year.
Case study: Upgrading to multi-channel FX electronic trading
A leading Gulf region bank needed to improve the visibility and flow of FX transactions across its multiple channels and departments using real-time market rates — to stay close to the market as well as to increase profitability and improve customer satisfaction.
The bank serves its clients through physical, digital, and virtual channels across branches, ATMs, internet banking portals, and internal systems. Its FX transactions include a mix of small-volume trades and many tickets, across multiple currencies, a subset of which comprises illiquid or pegged currencies.
FX transactions from the bank’s retail business units deliver a major contribution to its group revenues.
Key drivers for change
A vast network of branches, many clients and accounts, numerous legacy systems, and limitations in managing pricing were major factors in convincing the bank to invest in transforming to FX electronic trading.
Refinitiv experts from Project Management, Consultancy, Integration and Engineering worked offsite and onsite during various stages of project. We worked with the business, IT, and other stakeholders on a regular basis, using our experience to present multiple solutions and leveraging on our internal teams to mobilize options.
From zero to thousands of daily electronic trades
When the year-long process was complete, the bank had a fully operational single FX pricing platform with live market data that enables customers to receive prices and book FX transactions in real time.
From a base of zero electronic trading activity, the bank can now efficiently handle an impressive 100,000+ price requests every day.
The bank’s customers can trade on real-time rates across the bank’s channels, providing that all-important edge over its competitors. The bank’s new electronic trading capability means it has the flexibility to distribute better rates to selected channels despite customer classification.
This approach further helps the bank work towards achieving its overarching business digitalization objective as a leading banking group in the region.
Capitalizing on the opportunities
The first movers in FX electronic trading are motivating other banks in the market to follow suit.
Banks such as the one illustrated in the case study — and other larger banks in the region — have already onboarded and started enhancing their internal workflows, and have begun streamlining prices. As the market matures, FX electronic trading will filter down to clients and to other banks, including second-tier banks.
More than 300 banks across 60 countries have adopted Refinitiv’s electronic trading solutions.
Refinitiv FXall dealer-to-client trading and workflow solutions are used by more than 2,300 institutions worldwide, including asset management firms, banks, broker-dealers, corporations and hedge funds, with liquidity from more than 200 bank and non-bank market makers.
Educating and motivating Gulf region banks and FIs
At Refinitiv, we aim to educate and motivate more banks and financial institutions in the Gulf region to adopt FX electronic trading. We host various webinars, provide online access to tools and share case studies that inform and inspire banks to embark on creating an FX electronic trading program as part of their digitalization strategy.
We provide our diverse customers with an integrated electronic trading platform supported by FXall and real-time market data offering a suite of content services covering pricing and reference data, fundamental data, and economic factors.