LONDON (Reuters) - The technological “arms race” in the foreign exchange market will escalate, Deutsche Bank’s (DBKGn.DE) global head of foreign exchange said on Monday.
Speaking at the Reuters FX summit, Kevin Rodgers said more banks will be spending more money on technology this year as electronic trading platforms begin to be seen as essential tools of the business.
“If you are an FX bank and you do not have a well thought through electronic offering - you are not really an FX bank,” he said. “It’s becoming a technological and client service arms race. This year will be a continuation of that process.”
Deutsche Bank has a 15 percent share of the $5 trillion-a-day currency market and was ranked top bank for foreign exchange transactions for the eighth year in a row in the 2012 Euromoney poll.
Its single-dealer “Autobahn” trading platform has helped cement its dominance, with up to 90 percent of Deutsche Bank spot flows fully automated.
Rodgers said the emphasis on electronic trading was changing the type of people being recruited to work in the dealing room.
From “dozens and dozens” of spot traders when he first started at the bank 14 years ago, Rodgers said the headcount in foreign exchange at Deutsche was lower than a few years ago, though not dramatically so.
Instead, there were many more people working on the electronic side, including “literally Russian rocket scientists.”
“The skill types are moving away from the classic FX skills of making markets and becoming more technology-orientated. That balance drifts year after year and leads to a very different kind of FX staff,” he added.
Rodgers said although Deutsche Bank had mostly put in storage its contingency plans for a euro zone break-up, the financial crisis in Cyprus and subsequent bailout had revived concerns about such an event.
The bank started preparatory work on planning how to deal with a country leaving the euro zone in early 2012, but stopped after the “Drgahi put” in July when the European Central Bank chief promised to do “whatever it takes” to save the euro.
“Cyprus made us uncomfortable. It brought into operation some of the contingency planning we had thought about earlier. It was a small scale version of what might happen if a bigger country was in similar difficulties,” Rodgers said.
That planning included how to monitor parties affected, how to stop them trading, how to work internally with legal and compliance teams.
Rodgers said in his view the consequences of a euro zone break up would be far worse than the fallout from the collapse of Lehman Brothers in 2008.
“Everything we did internally at Deutsche Bank looking at the consequences of a break-up suggested it would just be horrific,” he said.
“We have to have contingency plans. Right now we have put them in a folder and hope we do not have to break them out any time soon.”
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Editing by Nigel Stephenson