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Happy medium as e-trading boosts Scandi FX market

An Aurora Borealis (Northern Lights) is seen over a mountain camp north of the Arctic Circle, near the village of Mestervik late September 30, 2014. REUTERS/Yannis Behrakis (NORWAY - Tags: ENVIRONMENT TRAVEL SOCIETY TPX IMAGES OF THE DAY) - RTR48F5V
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E-trading has made fewer inroads into Scandinavian FX markets than in other regions but this is changing. According to Svante Hedin, head of global FX trading at SEB in Stockholm, this growth in electronic business has been taking place without cannibalization of existing voice-driven business.

Read the full article in Thomson Reuters FX Exchange Good Health in FX.

The reason for this, according to Hedin, is that there remains a good appetite on the part of clients to execute larger clips by voice. “Larger clips require discretion, sensitivity and need to be managed carefully, which is where we seek to help our clients,” he continues. “We can do this by tapping into our franchise and help match off the original client’s interest.”

However he adds that more clients have become interested in the benefits of e-trading, especially for smaller or average sized clips: “We have been able to tap into this flow — some of which is new — to extend our reach on behalf of our clients.

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Different market characteristics

Hedin says the e-flow complements the existing business and they work well together. “You cannot ignore the potentially significant amount of added value for a client that comes with a trusted partner,” he says. “Bringing these two independent flows together helps clients on both sides of the transaction.”

The relatively unique nature of the Scandinavian markets means, according to Hedin, that while algorithmic execution is rising in the majors, it is harder to make inroads into local markets. “You have to be able to build the framework whereby the algo can interact directly with resting interest within the overall franchise — a challenge, as continuous dialogue between sales staff and their core clients cannot easily be automated.

“Equally, it is not just a case of lining up a liquidity-seeking algo strategy and press ‘go’; markets are too thin for that.” he adds. “An algo needs to be different for markets such as these that have different characteristics; you have to find a way of bringing the value of the franchise into the electronic environment.”

Although Hedin believes that we will see more algorithmic execution in Scandinavian markets, significant adoption is still a way off. That said, e-volumes are growing.

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Efficiency gains prove attractive

Building SEB’s electronic capabilities has been a key part of Hedin’s remit in his two years since joining from JP Morgan in London. “Our USP [unique selling proposition] is the Scandies and within those markets we are a wholesale provider,” he explains. “This has meant enhancing our technology offering as well as maintaining and drawing upon our traditional knowledge strengths.

“Technology has really helped in our non-core currencies,” he continues. “While we need to offer USD/JPY and EUR/USD along with the other highly commoditized currencies, they will never be our differentiator on a global basis. We will however compete on a global basis for Scandi business. For our non-core flow, being able to leverage technology has made us more efficient and helps us provide a better downstream service to our home market clients.

“More clients in this region are inquisitive about what electronic channels can do for them. Partly this is driven by regulation and partly by their desire to build efficiency levels,” Hedin says. “We are certainly having different conversations than we were a year or two ago. There is a debate around last look and internalisation for example, and we are fully engaged with our clients on these themes.”

Transparency reward for clients

Hedin notes the increased level of interest from SEB’s clients about reject rates generally and says the multi-participant platforms have a role to play in helping build this next level of transparency. “A lot of flow is going through intermediary platforms, which means those providers take on some responsibility for managing the client-bank relationship,” he says. “The end user experience is important to everybody, the liquidity provider and the intermediary, so it needs to be monitored.

Transparency should ultimately reward the relationship and the high quality providers,” he adds. “We are committed to helping our clients manage the challenges of regulation and the changing market structure. We know we are in a competitive space, but we are confident we can make small, but important, differences to our clients.”

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