Some clients are still paying more than they need to – or should do – for FX.
In an article in the FT, a research analysis of more than 2,000 funds showed the cost of swapping dollars into other currencies cuts 3.2% of returns, which would have been made from the underlying asset.
According to the research, custody banks charged an average of $267 for every $1m traded. However, the FT suggests that the transactions could be completed for just $35. That translates to an overspend of more than $370m over almost three years.
Foreign exchange is the only industry that charges an unknown amount for services that have a cost
Andrew Woolmer, chief executive at New Change FX
In 2009, the US state of California sued State Street, a US financial services and bank holding company, accusing it of ‘unconscionable fraud’ for overcharging the two state pension funds, Calpers and Calstrs, on currency trades.
State Street finally paid more than $500m in 2016 to settle suits from the US government, clients and regulators.
A groundbreaking survey of more than 300 asset owners revealed that 66% of those managers in North America and Europe still have no process in place to independently monitor whether they are getting fair FX rates from their global custody banks.
FX Transparency, LLC
Further research in 2018 showed another shocking disparity. Carol Osler, a professor at Brandeis University in Massachusetts, analysed the cost of standing instruction currency trades executed through custody banks.
It found that on average, investors were paying seven times more for currency when they relied on exchange rates through their custody banks, compared to what they would get if they negotiated at the market rate.
So why can’t you put the trades into competition and ensure you’re getting the best possible pricing with full transparency on what you are paying? Why can’t an FX provider give you access to comparative, multibank rates?
At MillTechFX, we thought the same thing - so we did something about it. Today, we’re giving our customers:
• Outsourced FX service to help you secure that lower cost
• Intuitive best execution solution to help you streamline your operations and get the best deal
• Real-time streaming of multibank FX rates that can be executed via outsourced execution services
• A fast, efficient and entirely transparent execution process to give you access to prices normally only open to larger institutions
This fresh approach to FX may help to stop the way firms are routinely being overcharged for foreign exchange. It also offers treasurers and traders the opportunity to unlock savings that even they might not have known existed.
To find out more about how MillTechFX can provide transparency, choice and control to your FX execution, get in touch today.
Keywords: Currency costs, fx execution, currency exchange, foreign exchange, exchange rates, best execution, payments, best rates, fx transparency, fx costs, multibank rates, hidden currency costs.