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Deutsche Bank Builds World EM FX Trading Engine in Singapore

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Chanyaporn Chanjaroen and Livia Yap
·3-min read
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(Bloomberg) -- Deutsche Bank AG is replacing its global pricing engine for emerging-market currencies in London with one in Singapore, drawn by surging trading in Asia and the increasing importance of the Chinese yuan.

Locating new and more powerful computer hardware in the city-state will help the bank shave vital fractions of seconds from the time it takes to execute orders in the region, according to Singapore-based David Lynne, the chief of fixed income and currency operations in Asia region.

The shift underscores the need to locate servers closer to customers amid the boom in high-frequency trading and the rise of the yuan, which accounts for about 4% of global currency volumes. It is also a win for Singapore, Asia’s biggest currency-trading hub, which is fighting to maintain its lead over chief rival Hong Kong and grab a bigger share of trading in the Chinese currency.

“Singapore is growing as a major regional liquidity center, and we along with some of our competitors are building capacity here to boost the speed of transmission into more Asian countries,” Lynne, who is also the regional head of corporate banking, said in an interview last week. “The upgrades we are making in new hardware in Singapore substantially increase our technical capability.”

The city-state also has a speed advantage, Lynne said. “It is faster than Tokyo in transmitting FX pricing into local Asia FX markets.”

Singapore is ranked third globally behind the U.K. and U.S in the $6.6 trillion-a-day foreign-exchange market, the latest triennial report from the Bank for International Settlements show in 2019. In the past few years, the Monetary Authority of Singapore has been encouraging banks to build systems that would remove a lag caused by routing trades through London or Tokyo, while touting access to the wealthy in the region.

To add to daily trading volumes of $640 billion -- up 24% from 2016 -- the MAS has also been promoting its offshore status for Chinese yuan trading.

All the major forex hubs are competing for a bigger share of yuan trading, which had reached a daily average of $284 billion, turning the yuan into the most-traded emerging-market currency, according to BIS data. And there’s still more room to grow, given that the yuan’s share of global payments and central bank reserves is still only about 2%.

Capital inflows into China are picking up pace as global investors seek higher returns. Authorities are currently considering easing restrictions on citizens investing in securities outside the mainland, a move that would facilitate two-way capital flows.

World’s Traders Catapult China to FX Big League on Yield Appeal

Deutsche Bank is also boosting its algorithm-based capacity for onshore yuan trading in China, said Lynne, who moved to Singapore with Deutsche Bank in 1998.

“We’re increasing our algo capability for China, which requires access to CFETS data,” he said, referring to the China Foreign Exchange Trade System.“We already see a majority of our products trading purely on algo. We expect to see more of that activity pricing on algo in the future.”

Deutsche Bank is seeing an increase in demand from clients, particularly those in China, to change the invoice currency for transactions to renminbi. “That will continue to increase,” Lynne said.

Emerging-markets team staff will continue to be spread across London, New York, Hong Kong and Singapore, with no impact on headcount from the location of hardware, he said.

JPMorgan Chase & Co. and UBS Group AG, the world’s biggest forex trading banks by volumes as per the 2020 Euromoney survey, have already have set up FX pricing and trading engines in the island nation. Deutsche Bank and Citigroup Inc., ranked fourth and fifth respectively, also count Singapore among their global trading centers.

Deustche Bank’s other three global FX hubs are London, New York and Tokyo.

(Adds more details on yuan trading in eighth and ninth paragraphs)

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