Thomson Reuters Eikon® Auctions app brings sophistication, automation and transparency to emerging markets
In 2013, a small team from Thomson Reuters first recognized the major inefficiencies and problems with the auctions process in many developing countries. With little automation, sometimes unreliable communication lines and limited transparency, these auctions typically do not have capacity to manage multiple bidding organizations, are vulnerable to favoritism (or at least perceptions of it) and simply take too long. An auction that might take an hour in the US or other more established markets, can take several days to complete in a developing one.
“I remember being in the foyer of a certain central bank, as they were ‘running an auction,’” recalled Malcolm Collins, head of Fixed Income, Market Development for Thomson Reuters Global Growth Organization. “This meant the wooden tenders boxes were placed in the foyer and bids in envelopes were placed into the respective wooden boxes/tenders by couriers or drivers. By 1:00 p.m., the security guard ‘closed’ the auction by wheeling the boxes out of the foyer and into the elevator. The boxes were taken upstairs and each bid was removed from the box, the envelope opened and the information was manually captured into a spreadsheet. A long deliberation session would’ve commenced regarding the allocation of said securities and eventually the results would be posted, faxed or emailed back to the bidders. The entire process could take up to five days.”
Well-managed foreign exchange liquidity is critical for emerging markets
Regardless of how they’re executed, these auctions serve a key purpose in developing countries. Central banks use them to manage the flow of US currency into and out of their markets, which is necessary for participation in international trade and global investing. Foreign exchange supports imports and exports, enabling these countries to gain access to important resources and create demand for their own goods and services.
Without the ability to trade in different currencies, economic growth in developing markets suffers. Currency liquidity can falter, and when that happens, people suffer: Imports can shoot up, goods and services can fall in short supply and prices go through the roof. That wouldn’t be good for any country – but especially not for developing countries where it’s likely a large percentage of the population already lives below the poverty line. There’s simply less room for resilience.
A better solution built on the Thomson Reuters Eikon platform
Knowing these auctions serve a critical need for developing nations, and that they could be done with much with more efficiency, accuracy and transparency, the Thomson Reuters team set out to build a sophisticated yet simple auction solution, delivered via the Eikon desktop. Building it via Eikon had significant benefits. Not only would the Auctions app be able to leverage Eikon’s elegant and easy-to-use interface, the solution would be free for any premium client who already had an Eikon account. No additional software or hardware required.
Thomson Reuters kicked off the first phase of development in 2014 and after months of collaboration with teams across the company, the solution was ready to go live with its first client – Debswana, the largest diamond producer in the world, very active in the Botswana FX market – in August 2015.
According to Ian Modubule, Treasury manager, Debswana, the Auctions app offered many advantages over the time-consuming process they had been using. Most importantly, he said, they saw improvements in “transparency in allocating, and effective and timely processing of deals, as well as more timely information flow in terms of announcing the auctions and their results.” He said such transparency was much needed. “As a major player in the industry, it is important that the Financial sector has confidence in our processes and to achieve that transparency is key,” he explained. “We must not be seen as favoring one player over the other, irrespective of size.”
The early success in Debswana was confirmation that Thomson Reuters had a compelling solution to bring to more emerging markets. As the Thomson Reuters team continued to refine the solution, the central banks of Tajikistan and Myanmar came on board in 2016. Like Debswana, both banks were using highly manual processes that had major limitations.
Built around their specific requirements, the Auctions app gave these banks the ability to announce, manage and perform all aspects of their auctions electronically.
The improvements were immediate, with both banks seeing increased efficiency, productivity and opportunities for growth.
According to the Auctions product manager Nick Fletcher, “Tajikistan went from running one FX auction per week to running 10 FX auctions weekly across three separate currency pairs.”
Expansion in Africa
The Auctions app continued to gain traction in November 2016 when both the Bank of Ghana and Bank of Uganda (both central banks) signed on for implementations within weeks of one another. Like the clients before them, the Ghana and Uganda central banks saw an opportunity to vastly improve and modernize their FX auctions process, which was holding them back from further developing.
According to Fletcher, the Bank of Ghana signed an order form after seeing a demo only a week earlier. “Their enthusiasm was also bolstered by our good relationship with the local International Monetary Fund (IMF) representative who said that the Auctions app was a good fit for their needs,” he said.
Despite a very aggressive timeline – less than one month to develop custom solutions, create profiles, train the central and member banks, and test each solution – the team was able to pull it off and both banks went live with their first auctions within 24 hours of each other.
At the Bank of Ghana, the first auction exceeded expectations, with the target amount fulfilled within the first 15 minutes of the 90-minute auction. “Throughout the whole process, the central bank staff was extremely thankful for a product that fit their needs perfectly, allowing them to bring FX auctions to the market so quickly,” said Fletcher.
Feedback from the Bank of Uganda was just as positive. “With no costs to the commercial banks, we have been able to deploy a solution which benefits the whole market and provides transparency, accuracy and credibility,” said Philip Wabulya, executive head of Operations for Bank of Uganda.
Auctions app is a win for everyone
It’s been a few months since the back-to-back African launches, and the implementation at the National Bank of Ukraine (the largest to date), which followed shortly thereafter. Remarkably, there have been no issues for any of the clients – only upside. While the team has had little time for reflection, they recognize the impact of their “simple solution” and the potential it has to help other emerging markets
Auctions that were taking three or more days can now be completed in less than an hour, start to finish. And beyond efficiency, the app’s transparency enables fair and compliant access to liquidity, which plays a pivotal role in the development of our client countries’ economies.
Collins, who described the manual auction process he witnessed just a few years ago, has seen firsthand the difference that the Auctions app has made for the central banks who have implemented it, and the stability it’s bringing to the FX market in these developing countries. “It fills the Auctions team with pride to see how quickly our clients have adopted the Auctions app and to see the difference it’s made in making these markets more operationally efficient and transparent,” said Collins. “We feel more like a partner for positive change rather than just a vendor.”
The Auctions app has evolved since its launch, becoming a multi-asset solution. In addition to FX spot auctions, clients can use it to carry out treasury bond, treasury bill, money market and FX swap auctions with ease.
The Auctions app currently has six live clients, three additional signed contracts and many more potential customers in the pipeline. The team’s primary focus will remain in emerging markets, while they’ll also begin preparations to eventually go global, creating an auctions product for countries and banks with more sophisticated workflows and requirements.
In the meantime, the team will continue its work to get the solution into more developing countries in Africa and around the world – where the markets may be small, but the impact of the Auctions app is enormous.
How can a court filing at 10 a.m. affect my holdings at 10:05?
The answer is Eikon, the financial platform built for now.