Can you tell us how Barclays structures its Asian distribution business?
Bull: We focus on a number of key aspects. Firstly, we target the right people. The goal here is to strengthen our existing business networks and constantly enhance our client focus.
Secondly, we put in place what we call 'sales enablers'. This is something we're doing globally. These enablers work closely with our sales teams, offering them support and in turn giving them more time to focus on core sales. These include E-commerce as well as the core structuring teams. The sales guys focus on the client's needs while the structuring guys help them meet those needs through product development or advancement.
Thirdly, we look at what we call overall sales planning. This is where we try to understand what clients want. This is something the industry has been particularly poor at in the past.
E-commerce is an area where Barclays has tried to differentiate itself from the competition. With your real-time distribution service, BARX, you seem to be turning yourself into an exchange.
I wouldn't go as far as to call us an exchange. But I would say we're creating a pool of liquidity in which we are acting as the principle. The results to date have been great. We provide access to a number of exchanges. We're trying to be a liquidity provider of choice and within that create a larger pool of liquidity.
We launched BARX in March and the business has expanded rapidly. It's grown four fold in a short space of time. Around the same time we rolled out our foreign exchange platform. We are now quoting prices to a number of decimal places. Nobody else can quote to five decimal places electronically and in real time as we can. And again we continue to have record days. When I talk to clients, the majority of our business is new business being done in this time zone. Because of Barclays' transparency in the coupon curve, the agency market, as well as the swap curve, people genuinely feel that they know where the market is. So trades they used to wait to do in London or New York time are now being pursued in Asian time
Having that liquidity must make it a lot easier to structure products for clients?
Any trade is a series of discounted cash flows, and with any series of discounted cash flows you need to know where the curve is, real time, at any given moment, to be able to price those cash flows effectively. Obviously you gain a big advantage if you know where every point on that curve is and you trade it real time.
But we don't provide that pool of liquidity just because we want to build tertiary products more effectively. I think of it as more of a by-product. Liquidity itself is the goal. Our pricing models and algorithms are driven by liquidity - be they foreign exchange, government bonds or the interest rate derivatives market. And so the more business we see, the more accurate we can say where that zero coupon curve is at any one time. We can then price any one asset off that curve and work out why that asset may or may not be rich to that curve and make a value assessment on it.
Some argue that there's actually very little innovation in financial products. That the only differentiator is in liquidity and distribution.
Since the late 1990's there has been a much greater democratization of the market and transparency is much greater than it's ever been. Price discovery used to be a differentiator. Today, the differentiator for a bank is how quickly and how deeply one can use price discovery.
This means that as a product provider, the focus needs to be value added service and liquidity. These really matter to clients.
What kind of opportunities are arising as a result of deregulation in the FX rates, credit, commodities and derivative markets in the region?
The institutional market is no longer an exclusive club, but is being constantly opened up to new playersl The market is now much freer and more open, which has to be good for both banks and clients. There is a much broader playing field.
However, in the retail market regulators are becoming far more conscious about what people are buying or what people are purporting to sell to their retail clients. They want to make sure everybody is certain of the risks intrinsic to the products they are selling or buying? Are clients truly aware of both the downside and upside potential of the products they are buying?
What's your view on the kinds of opportunities opening up in China?
We're very busy in China. First and foremost we're opening a new office in Shanghai later in the year, so we can take advantage of the opening up of the currency and option markets and the Renmimbi bond market. The other access point is Hong Kong where we have grown our sales team. What was effectively four individuals covering both Hong Kong and the Mainland has now grown to 10 sales people and two to three structurers.
Our business is developing from one where we provide offshore products to onshore clients - where regulation permits to building a business onshore for onshore clients. The onshore business will probably begin by addressing the banking side of the business, which includes our debt capital markets and corporate coverage arms in the domestic markets. In the past that has proved for us a very balanced and efficient way of growing the business.