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February 27, 2024 - In a candid conversation about the industry’s fee structures, Sam Low from LiquidityFinder recently posed some question to James Dewdney, Associate Director, eFX at Saxo Bank to address perceptions regarding its pricing compared to other B2B liquidity providers.
Saxo Bank recently revamped its pricing model, particularly within its B2C sector, positioning itself as a highly competitive option for UK retail clients trading Equities/ETPs and Listed Derivatives. With over a million end clients, Saxo Bank cites its scale as a key factor in delivering added value to its growing customer base, offering notable returns on deposits for clients with significant Assets under Custody.
James challenged the notion held in some circles that its services are relatively costly. As he explains, Saxo Bank sees the value of its services underscored by the sophistication of its technology stack and the breadth of asset categories available to clients.
With a focus on high-touch client services and dedicated relationship management, Saxo Bank positions itself as a compelling choice for institutions seeking robust liquidity services, backed up by a strong balance sheet. The bank's strategy is to align its fees with the comprehensive support and advanced technological integrations it offers, ensuring that institutional clients perceive true value in their partnership with Saxo Bank.
[Sam Low, LiquidityFinder] Saxo Bank has a reputation in some conversations I have had for having higher fees compared to other institutional and retail brokers. How do you respond to the perception that your fees are expensive?
[James Dewney, Saxo Bank] At the start of the year Saxo overhauled pricing in the B2C business, to become the most cost-effective UK retail broker for clients trading Equities/ETP’s and Listed Derivatives. Additionally, inactivity fees have been removed and FX conversion fees reduced. Investors have increasing demands to the overall investment experience and the ability to trade across markets and products on award-winning multi-asset platforms has always been Saxo’s core pedigree. With the lower prices and fees, it’s becoming even easier and more attractive to diversify across asset classes, which is critical to any healthy and profitable portfolio. With more than 1 million end clients, Saxo has achieved significant scale, which enables us to pass on even more benefits to our growing client base. Clients with Assets Under Custody (AuC) over £100k are earning +3% on deposits.
Within Saxo Institutional I disagree it is expensive. Whether something is expensive or not is a relative measure. When you combine the sophistication of the technology stack, extensive list of asset categories available and high-touch client services, the fees are very compelling. Part of the problem is in identifying a real like-for-like competitor and then comparing pricing. When we welcome an Institutional Client, they have dedicated relationship managers and 24/7 client service teams at their disposal. They can access markets via the trading desk in case they cannot get online, and we offer comprehensive support for technical integrations, e.g. FIX or Rest API’s.
Can you explain Saxo’s approach to regulation and operating in different jurisdictions? Are there certain offshore locations like BVI, Labuan, Mauritius etc. that you are unable or unwilling to service through your institutional business? Why is there a cut-off?
Country lists are categorised on risk and the associated cost of managing that risk. What we have seen in the previous couple of years is that financial services have come under greater regulatory scrutiny and with good reason. At Saxo, we are regulated by multiple national regulators and are committed to the high standards within regulatory and financial crime compliance. Taking a risk-based approach to both our retail and institutional businesses, we have a firm view on those jurisdictions from which we do not accept clients. This is true for any major international bank, and it is part of our value that we are a trusted partner for our institutional clients, and they rightly expect us to not only comply with the letter of the law. Our policies, processes and practices reflect the spirit and intent of the law as well.
This does not mean we do not service institutional clients in some offshore locations, but it does mean that we take an enhanced approach to how to properly assess and mitigate the additional risk associated with such jurisdictions.
Saxo Bank'a Headquarters. Hellerup, Denmark [Source: Saxo Bank]
As more liquidity providers and prime brokerage options emerge in the market, what differentiates Saxo as a liquidity and custody provider? Why should institutional clients choose Saxo over some of the newer entrants in to this space?
Saxo was rated ‘BBB’ by Standard and Poors last year with a positive outlook and has recently been designated a Systemically Important Financial Institution (SIFI) by the Danish FSA. The Group has a Total Capital Ratio of 31% and Common Equity Tier 1 (CET1) Capital Ratio of 24%. For comparison large international banks typically have a CET1 Ratio around 13-18%. This means Saxo is a desirable counterparty from a credit risk standpoint. The group today serves well over 1 million clients and holds more than $100 billion of client assets which is to an extent a reflection of this.
This proposition in itself is unique. On one side we offer multi-asset prime brokerage, and on the other white-labelling opportunities more akin to an enterprise solution specialist than a bank. Often, when I speak to would-be clients, we talk about buy not build when it comes to critical trading/wealth management architecture. What it boils down to is the opportunity to achieve massive scale with modest CAPEX and OPEX, relative to the opportunity the clients aim to address.
What are some of the most important geographic regions and market segments that Saxo is focused on for institutional business growth? Where do you see the biggest opportunities?
Additional to the major centres we have offices in today, e.g., London, Paris, Dubai, Singapore, Tokyo, Hong Kong and Zurich, we work with exciting clients all over the world: Benelux, Poland, Canada, South Africa and Australia to name a few. We believe the UK offers significant growth potential. Here we find ourselves working with challenger banks, digital wealth managers, stockbrokers, hedge funds and other retail intermediaries.
How has the competitive landscape for institutional forex changed over the past 5-10 years? How is Saxo responding to increased competition from global banks, non-bank providers?
In the liquidity arena there has been a massive rise in principal trading firms or non-bank LP’s. Technology, big data and machine learning have all been harnessed by serious electronic traders to compete with traditional bank FX Liquidiy Provider’s. Today we see a new generation of hybrid traders, simultaneously making and taking prices.
I also think data has become more critical than ever, banks and brokers who harness big data into actionable insights will outperform their peers that do not. To this end, we partnered with a market leading TCA platform, FairXchange, which puts data at the heart of our e-FX strategy.
Offering clients high touch Prime services across equities, fixed income, foreign exchange and listed derivatives, via a single onboarding/ API integration/cross margined account is compelling.
Our omnibus solutions for intermediaries allow our clients to focus on their businesses and to realise their overall ambitions free from onerous operational asks and expensive development work. Some of our white label clients are Tier-1 and Tier-2 banks. This is buy not build again, supporting digital transformations for established firms.
Can you share any new services, platforms or technologies Saxo Bank is developing for its institutional clients? How is technology and innovation a strategic priority in your institutional business?
We have recently begun offering securities lending which allows clients to unlock additional commercial opportunities from cash and assets they already own/control. Additionally in the equities sphere we are rolling out fractionalised shares, allowing smaller clients exposure to mega-caps.
We have also just launched our new back-office environment Saxo Partner Connect together with a new wealth management platform, Model Manager, which facilitates the creation and rebalancing of client portfolios, a key workflow challenge for money managers.
Outside of investor services we are hosting within new international data centres for our principal FX market making business, Saxobank LP, initially in NY4. This is particularly relevant to clients who have made NY4 their ‘hub’ for liquidity. Being able to offer clients unique liquidity via our own inventory skews is attractive for clients.
Finally on the FX front, we have revamped our FX Options product. Clients can now simultaneously execute up to 10 separate legs. Where buys and sells offer Vega netting, tighter spreads will be applied per leg. We have also introduced a delta exchange function, where we offer executions at mid-spot, as well as a risk graph to visually represent pay-off profiles at expiry. Lastly on FX Options, we have altered our margin methodology, which typically increases overall net-free equity.
What conferences are you attending this year where people may be able to meet you in person?
In Europe we will attend Trade Tech in Paris and Amsterdam as well as the iFX expo in Cyprus. Also, we will be at Finance Magnates in London.
Finally, give us 3 main reasons why LiquidityFinder’s members should hit that ‘Follow’ button for Saxo on LiquidityFinder?
Sure:
1) Our new B2C pricing makes us the most competitive provider of retail brokerage across exchange traded products in the UK.
2) Our multi-asset prime brokerage offers client’s access to all major asset categories over a single FIX API with a credit-worthy European banking institution.
3) We publish excellent content for free every day, covering all key themes in the market and global economy.
Thanks for your time James. Great to catch up with you.
You too Sam.
You can contact James directly through LiquidityFinder here.
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