Editorials
BayernLB leaves the aggregation to TraderTools and generates FX spread revenues from day one e-FOREX - April 2010
BayernLB is the leading Bavarian commercial bank for large and middle-market corporate customers in Germany and Europe. It is a member of the Sparkassen-Finanzgruppe in Bavaria.
In order to keep its competitive edge over peer regional banks in Germay, BayernLB is undergoing a massive restructuring focused on the consolidation of the bank's core businesses. One unit that has consistently outperformed over the past few years is the FX trading department, headed by Marc Burgheim. Although his department is considered a "boutique" within the bank, Marc is preparing for the day when FX trading will be recognized as an ordinary line of business.
Although the unit has been profitable, it is still largely based on manual trading. For an important deal, "sometimes I'd send out 5 traders to ask about prices," said Marc. This, of course, is not an optimal procedure in a business where every millisecond counts.
Automation is the Challenge
Marc knew that FX trading was providing stable earnings for the bank. But he also knew that those earnings "could be increased with the right investment." The right technology was the answer. If much of the FX trading could be automated, Bayern would be able to offer better prices, more liquidity and quicker response times than any other bank in its peer group.
Step 1 was aggregation, in order to reduce spreads and increase profitability. Step 2 was full STP, in order to be able to increase trading in Options and Emerging Markets. "Having no manual inputs would be a huge benefit," according to Marc.
Marc checked out various aggregation tools as well as ECNs with aggregation functionality. The problem was that each one of these solutions would have to be integrated with additional tools in the future (i.e. to handle algorithmic trading or auto-hedging). That's when a colleague at BHF, another German bank, told him about the success they've been having with an FX trading platform by TraderToolsTM.
Integration is the Answer
After a relatively short, evaluation (PoC) period, in which full STP was successfully implemented, TraderTools' Liquidity Management PlatformTM (LMP) went live in the Bayern FX trading room.
With manual trading, it is humanly possible to handle only 2 or 3 liquidity sources at a time. Now Bayern FX traders are "more than happy" being able to stream 5 or more separate liquidity sources at a time.
"STP to the front office works great and prices have improved significantly," said Marc. "We calculate spreads in tenths of a PIP. If a spread can be improved by more than a tenth of a PIP, it's already better than expected."
"What sold us on TraderTools was the fact that its LMP offered a lot more functionality than just aggregation," explained Marc. "We're looking forward to activating algorithmic trading and auto-hedging functionality in the near future."
In terms of being able to benefit from these and other capabilities, such as the pricing engine and order management, "a lot depends on IT resources, but we're off to a good start. IT has been extremely satisfied with TraderTools' support and with the product itself. Our 'GoLive' was completely in line with expectations," he added.
Will the entire FX trading department be using LMP? "Today, about half the traders are using the system. From the positive results we've seen so far, I expect that number to increase to about three-quarters really soon."
The FX trading solution used by Bayern LB is TraderTools' Liquidity Management PlatformTM, which integrates liquidity aggregation, a pricing engine, order management, white-labeling and algorithmic trading/auto-hedging capabilities. For more information, visit www.tradertools.com.
