Foreign Exchange Derivatives House: Deutsche Bank

IFR Awards 2020
5 min read

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High degrees of electronification made currency markets well-prepared for pandemic-era trading, as banks that had invested heavily in technology were able to help clients navigate this turbulent period. For its robust e-trading capabilities and innovative work with clients, Deutsche Bank is IFR’s Foreign Exchange Derivatives House of the Year.

Foreign Exchange Derivatives House

Foreign exchange markets appeared well-suited to 2020’s highly unusual trading environment. Banks process trillions of US dollars worth of currency trades electronically day in, day out, smoothing the way for large numbers of staff and clients to work remotely.

But for currency derivatives – historically one of the least advanced corners of FX markets, technologically speaking – the global pandemic provided the sternest test to date for trading desks. The twin challenges of contending with the most volatile conditions in years and not always being able to rely on office-based systems and telecommunications to trade at a time when workers were scattered meant there was little room for error.

Deutsche Bank’s FX derivatives business rose to this unique set of challenges, processing a record number of trades over electronic platforms, rolling out an ever-broader set of products and helping clients solve a variety of problems through restructuring old transactions and even developing groundbreaking new hedging programmes.

“We’ve invested heavily in electronic pricing tools, or tools for our clients. In the periods of Covid disruption, these became invaluable as ways that we could scale up our price distribution to our customers,” said Logan Campbell, head of FX derivatives.

“To get a good price and being able to deal in a quick, efficient, seamless way has never been so important."

Deutsche transacted nearly 50,000 client FX derivatives trades and priced more than 1.2 million requests in the 12 months to the end of September. In March, during the height of the pandemic-related volatility, the bank had its busiest month ever, trading €195bn – 43% higher than its average monthly volumes.

All this was done through a high level of automation. Four out of five of Deutsche’s customer derivatives trades were electronic, while 19 out of 20 client requests came in that way.

That Deutsche has been able to continue to invest significantly in its e-trading capabilities is testament to the bank’s commitment to FX more broadly. Foreign exchange was one of three pivotal businesses that chief executive Christian Sewing vowed to prioritise when he announced a dramatic overhaul of the investment bank in 2018.

“That commitment has been really important for us in order to continue to get the resources, whether that be on the IT side or even just maintaining the human investment,” said Campbell.

That investment goes beyond electronic trading of the most frequently used FX options too, with Deutsche now offering a broad range of more exotic structures. That has led to a five-fold increase in electronic ticket volumes of such products since 2016 on its Autobahn OTC Structures platform, or AOS.

“We are covering products that are a lot more complex,” said Julien Vinit, head of FX strats.

Deutsche’s derivatives knowhow also came to the fore when clients faced a range of challenges throughout the year. The bank structured the first ever environmental, social and governance-friendly FX options hedging programme in October for Primetals Technologies.

All FX options the specialist steel engineering company trades with Deutsche over the next four years will come under the framework, encouraging the firm to meet various ESG targets, including making sufficient investments in research and development in green technologies.

If Primetals doesn’t meet five pre-agreed ESG targets on a yearly basis, it will have to make a sizeable charitable donation, effectively giving up most of the price discount it had received for doing the ESG options.

“Deutsche Bank was clearly supportive in pushing this through,” said Jeremy Hamon, head of finance and treasury at Primetals Technologies. “The entire bank – legal, structuring, trading, the ESG department – were all committed and driving in the same direction.”

Deutsche was also active in helping corporate clients most affected by the pandemic. That included allowing a European airline to renegotiate currency hedges that were sitting on gains to release much-needed cash, before helping the company to rejig its hedging programme to account for forecasted changes in aircraft delivery.

“It was a way for them to use derivatives ... to fund their short-term needs given the disruption,” said Sebastian Gomez-Alarcon, EMEA co-head of FX structuring. “And at the same time help them to reassess all their expected flows in the future.”

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