NatWest Markets recognised in two categories in the 2022 Best Banks Awards

As uncertainty brought about by the Covid-19 pandemic makes way to rising volatility, healthy levels of trading across all FX instruments in 2022 led to another year of strong growth for NatWest Markets’ FX prime brokerage (FXPB) business

With the return of volatility to the FX markets in 2022, FXPB volumes increased over the previous year. One feature of the year was consistent rises across all products. It is common during times of high volatility for cash markets to be very active while derivatives tend to lag, but this did not happen in 2022. Clients were instead active across all segments even during periods of high volatility.

Uncertainty caused by the Covid-19 pandemic led many market participants to limit operational change. This resulted in some clients postponing making changes to their prime brokerage relationships. At the beginning of 2022, there was pent-up demand that presented itself in a significant influx of new clients for NatWest Markets.

“Last year was a very good year for us,” says Marcus Butt, global head of prime services at NatWest Markets. “We had a very strong year both in terms of revenue and new clients. Volumes were more steady than in previous years. Once everyone had become accustomed to new working practices post the shift to working from home, clients had greater appetite to take on new service providers.”

With the return of healthy trading volumes across its existing client base, an important focus for NatWest Markets in 2022 was to resume reaching out to other client segments of the FX market that are not well supported by other prime service providers. Unlike many of its peers in the FXPB space, NatWest Markets aims to provide prime brokerage services to those in the market that have fallen through the cracks of the credit intermediation system.  

Asia was particularly important in that regard, and in 2022 the bank onboarded a number of high-frequency traders in the region to its FXPB service, with more in the pipeline for 2023.

Another client segment that featured high on the bank’s radar in 2022 was family offices. To this end, NatWest Markets has worked closely with Coutts, the private banking and wealth management division of NatWest Group, to build targeted solutions specifically designed for family offices, as many firms are often limited in where and how they can execute their FX transactions.

“Many family offices are tied to executing with their private bank, which limits their access to the market,” explains Butt. “We’ve built targeted solutions around the family office business and are hosting a conference in Singapore with Coutts that will cover topics of concern to family offices. This follows the theme we’ve been pursuing for many years of analysing the market to see which groups of clients are not well covered from a prime brokerage point of view.”

This theme played to NatWest Markets’ strength following Jefferies Financial Group’s disengagement from the FXPB space in the first quarter of 2022, leaving many of its clients – especially those in the brokerage space – actively looking for new prime brokerage homes. But given that the brokers’ business model was markedly different to its more traditional client base, NatWest Markets had to closely study these market participants’ inner workings to design services that would best serve them.

“These clients weren’t doing business the traditional way in terms of assets versus positions on their books,” explains Butt, “so we had our internal credit teams and our prime risk team analyse their business model to understand what that meant from a risk perspective. After gaining a good understanding of how they operate from an operational and credit risk perspective, we built several new credit models that have been well received by that community.

 “One big risk in that type of business is concentration risk, which is why we built bespoke controls and legal agreements around that risk to accommodate them in a secure way, with the appropriate level of risk management.”
 

A successful approach

This ability and willingness to accommodate new and existing clients is one of the reasons for NatWest Markets’ success in the FXPB and post-trade space. The bank is a regular winner in the Best bank for FXPB and Best bank for post-trade categories at the FX Markets Best Bank Awards.

Butt believes there are several reasons for this success. The first is that prime brokerage clients are cared for by a single integrated FX team that fully owns the relationship from the front to the back office. The second is that NatWest Markets does not believe that one solution fits all and has the appetite to create purpose‑built solutions according to clients’ specific requirements.

“Our approach of having a service team that is part of the front office and part of the business really helps because, unlike a lot of our peers, where their prime brokerage team works in another part of the bank and are therefore not part of the core business, our team own the client relationship front-to-back in a way that allows them to get to know the clients and their operating model very well. This means clients are very comfortable coming to us and asking us to help them solve issues they may be dealing with. Having that very close relationship with clients has helped tremendously in building success.”

Clients are able to look into the type of solutions that may help them improve their own operational limitations or to venture into new areas of the market they were previously not involved in. NatWest Markets’ strength in this area is underpinned by its digital FX team, which specialises in creating automated workflow solutions for corporate and institutional clients, and which FXPB has collaborated with to broaden its customers’ propositions.

While having a myriad of interfaces with clients may seem to overcomplicate NatWest Markets’ operational procedures, Butt explains that the key to making it work efficiently is to normalise the functioning of all bespoke solutions into something easy to automate, making it simple to run and extend to other clients when the need arises.   

“It wouldn’t be sustainable to build manual workarounds for all these solutions. The key is to automate them because otherwise we wouldn’t be able to cope with the volume,” says Butt. “Having an in-house-developed platform is a great advantage. If a client asks us for a solution to a specific problem, there’s a very strong probability someone else in the not too distant future will come and ask for something very similar. So by designing a solution for the initial client, when the next client comes along, we are able to reuse that same solution.”

This approach will serve the bank well in 2023 and beyond as it continues to pursue client and regional diversification. Extending its presence in Asia will continue to be a priority – as is the US, where Butt believes a lot of opportunities exist for NatWest Markets’ range of FXPB solutions. 
 

NatWest Markets was voted Best bank for FXPB and Best bank for post-trade at the 2022 FX Markets Best Bank Awards.

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