Managing for revenue
Managing fx (or any markets business) for revenue growth 2005 results reported demonstrate a diversity of outcomes across a wide spectrum of banks from their forex businesses. In many years, we have seen a narrower dispersion of outcomes – most are up, most are down. Years have had favourable trends or unfavourable absences of volatility. These are the readiest explanations for managers trumpeting or explaining their fortunes. The range we now see suggests a more challenging environment for the art of business management itself in the trading room. It is clear that ongoing success requires a different view of the trading and sales opportunities and a management style that can be relied upon to convert those opportunities to predictable net revenues to pass to shareholders. Based upon our experience and the work that we have done, ClientKnowledge proposes a simple framework. You must adopt a structured approach comprising three key steps: - A disciplined approach to trading, that, in turn, enables you to:
- Price your liquidity accurately for each of your client segments and recognize which flows suit your book and which don't, so that you can:
- Turn away business that offers no or only negative value to you (based on flow and/or spread).
Of course, you must be able to do these in both analogue and digital modes. And you must look both at the revenue and the cost side of the equation, applying a methodology to discover the actual and potential gross and net fx revenue (true profit) per activity, desk and account covered. This simple framework throws up a range of complexities, from the requirements of building a process to the practicalities of implementation. ClientKnowledge has worked with global, regional and niche houses whose net revenues have benefited substantially and over a sustained period by adopting this approach and the range of measures and changes implied. Our full paper (available to our customers April 2006) will examine these complexities, the process, metrics and practicalities of implementation.
Please comment on these thoughts by making your remarks in the box below. They will appear after being reviewed by ClientKnowledge and confirmed back with you.
Justyn Trenner February 2006
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