Over the last 10 years, structured product providers have developed fully-integrated, internet-based services and solutions with a focus on financial institutions, private banks and product distributors. During that time, most active banks have built their own single-issuer platforms as a way of capitalising on technology developments and automation, reducing production costs and adding scalability to the market. Customisation is another strand in the technology story, providing the ability to create tailor-made products at the point of sale.
Regulatory and market pressures after the credit crisis also made manufacturers increase their focus on e-commerce platforms to automate processes, become more efficient and service clients better. After the financial crisis, the need to tackle distrust around structured products highlighted the need to bring education to the market in a transparent and responsible way, which also pushed the development of technology-based tools.
Some providers found themselves rebuilding their distribution capabilities after struggling with the credit crisis and those committed to the market have continued to invest and build up their internet platforms or complementing their existing outlets with more comprehensive tools.
With single-issuer platforms, issuers of structured products were able to address the needs of providers in different parts of the market:
Asset managers: to structure and launch funds through self-structured, self-managed synthetic products, including principal-protected, multiasset and currency hedging products;
Wealth managers and private banks: to create self-managed investment products;
Pension funds and insurers: to create structures that can effectively hedge liability exposures and rebalance regularly as exposures change.
Single-issuer platforms were originally developed by Swiss banks to serve the needs of their local market, one of the most established for tailored, bespoke products for the private banking and institutional clientele. Single-issuer platforms started covering one or two asset classes, but have now evolved to offer a wide variety of underlyings, payoff types and wrappers.
Single-issuer platforms provide access to pricing and quotes on a standardised set of products, and allow banks to manage thousands of products, redeem thousands of currency units per ticket, with different maturities, protection levels and participations. This framework streamlined the process not only for private banks, but for thousands of intermediary companies trading smaller tickets.
At a user level, single-issuer platforms allow the investor to enter the market quickly and in a costefficient way as they would not need to go to multiple brokers to execute a particular trade; manage the outcome efficiently; simplify the process of building a product and manage regulatory requirements better. Single-issuer platforms were also able to address regulatory requirements around transparency and product understanding/education.
These platforms have evolved over time with new tools, features and added-value functionality in terms of asset allocation through a variety of investable wrappers (certificates, notes and OTC derivatives), risk management instruments (delta one, leverage and capital protection), execution and post-trade services.
From a business model perspective, multi-issuer platforms have developed around different setups and ownership structures, including platforms owned by banks (Vontobel’s Deritrade, Leonteq’s Constructor and Goldman Sachs’ Simon), fintech companies (Halo Investing, Numerix and FinIQ) and even consortiums of investment banks and fintech firms (Contineo), which has resulted in a debate about banks providing technology solutions and the conflicts of interest around each set-up.
Pricing challenges and margin compression pressing issuers and distributors have pushed the industry to find ways to lower the cost of issuing and be able to distribute products more effectively. In that environment, issuers are now moving towards a set-up that allows the sell- and buysides to be faster, wider and better at providing pricing and distributing products, with a number of single issuer platforms opening up to other issuers and the appearance of hubs providing connectivity between the counterparties (issuers) and private banks (distributors).
Multi-issuer platforms are seen as an opportunity to create industry standards (payoff types and naming conventions), and are being used as a pretrade tool where advisers can build their products based on client risk profiles and access pricing a transparent way.
The single-issuer model has now been challenged by the appearance of multi-issuer platforms with an open-architecture approach as clients demand to have all products available on one platform. The initial model based on investment banks (manufacture) servicing their own private banking channels (distribution), is not efficient enough in an environment where open architecture is getting increasing weight.
Multi-issuer platforms capitalise on the trend in wealth management towards independent and product-neutral investment advice. Due to regulatory restrictions around suitability, riskprofile, market views and understanding of payoff structures, multi-issuer platforms are only available to institutional clients, private banks and distributors with know-how in the design of structured products.
Multi-issuer platforms not only capture prices of structured products, but also other important
attributes that influence investor’s decision-making such as issuer credit rating, secondary liquidity and post-trade client servicing and advisory.
Single- and multi-issuer platforms can coexist as consumers continue to demand access to multiple wealth managers offering a multitude of investment services via digital platforms. Multi-issuer platforms increase the transparency and comparability of products and allow more competitive pricing and remain branded in a multi-issuer format.
The focus of the multi-issuer platforms is on aspects such as platform neutrality, high quality technology allowing fast execution, more transparency and democracy, or by concentrating all sources and services to one platform, with all the main attributes of platform trading, such as price discovery, trade execution, and information management.
There is a trend towards solution providers working together in one ecosystem, with premium, highquality content and solutions delivered in one environment to ensure effective decision-making.
The multi-issuer market is heading further towards solutions that provide the possibility to find all services on one platform.
Currently, online brokers are connected to exchanges and select products for their clients, and the industry has seen issuers heading in the direction of integrating a multi-issuer platform into an online broker, which could make the role of the exchange dispensable. The development of electronic platforms is relatively fragmented today with a large number of individual operators each developing their own in-house systems and codes. But it is still too early to expect an ideal world in which one multi-issuer platform will serve the trading needs of all players, not to mention the challenges of integrating various standards.
More and smaller structured products deals and a desire for a speedier requests for quotations could only be solved by a technology intervention. As clever as salespeople can be, their limitations are made even more obvious by the increasing power and scope of computational technology. Whereas the question 10 years ago was, what kind of technology can fit the purpose, nowadays it is more to do with whether an issuer or distributor wants to plug into a multi-dealer platform, lots of single-dealer versions of the same thing or create or enhance your own platform.
It is a long way from the mythology that surrounded the first issuer platforms for structured products, which were created in the days when it was still all about large, chest-pounding deal makers and when technology gurus were consigned to dark backrooms and endowed with a status resembling that of compliance or junior algorithm specialists.
Out of that murky world, two banks invested and led the way – Barclays (then Barclays Capital) and UBS. The first of these was probably UBS, which, struggling under the stress of dealing with more,
David Wood
Head of electronic business equity, derivatives & cross asset Societe Generale
smaller deals was seeking a way to overcome the threat of submerging under a mass of new trades. Eager to conquer this challenge and revert to creating the more interesting deals that structured products bankers live by, the investment bankers peaked over the divide, spied what their foreign exchange colleagues were doing about the same problem and purloined the technology that was moving beyond its infancy.
The result was UBS Investor, a single-dealer platform designed to commoditise flow products for private banking. Around the same time, erstwhile structured
products supremo Barclays Capital was having to confront a rapidly increasing need for requests for quotations, a problem emerging particularly in Asia was created the email pricer and most easily solved by hiring more salespeople and investing in more excel technology. Aware that this approach was old school and unsustainable, the bank invested in the hunt for an answer in a technological form.
“What we found off the back of the email pricing technology that was the first stage of this transformation, in Asia, was that the immediacy
Does your platform offer a grid pricing view of multiple structures and underlyings (Y/N)?
AG DeltaDealstation
Is there a platform or participation fee in addition to product revenuebased charges (Y/N)?
of the pricing drove people to make effectively faster but more decisions about investment products, which then resulted in more products of smaller with smaller tenors which were bespoke for particular investors,” said David Wood, head of electronic business equity, derivatives & cross asset for Societe Generale, and previously head of direct and listed products at Barclays.
The problem of the email pricing was that’s all it was, according to Wood. “If the client is happy to make the price themselves, they’re probably also
Does the platform cater to public offerings (Y/N)?
What features do you plan to add in the next 12 months?
Multi-asset and FX-linked structured products; artificial intelligence; and mobile capabilities
More payoffs; trading lifecycle covering private placement, bookbuilding, grey market, secondary market
Risk management, client margining, second order exotic structures
New payoffs; enhanced lifecycle and posttrade services; and bookbuilding
Regulatory features including high speed booking, documentation and reporting; client self-service tools for simpler variants of structured products; more automation in post-trade lifecycle
Morning grid, autopricing, issuer feedback, secondary market engagement, event notification, data analytics functionality
Post-trade services; heatmap or multipricer; new product types (knockouts); onboarding of new issuers
happy to make the decision to invest themselves and also they want to see the term sheet and everything else online, as you would with a retail bank,” said Wood.
Contineo, the multi-dealer owned by a consortium of banks in Asia was slow to embrace the email pricer component when it developed its platform, “because we wanted to use Fix - the best way to automate and standardise”, according to Mark Muñoz, managing director at Contineo. “The Fix protocol was important, because it is used in all the other asset classes and the investment banks that we were dealing realised it was also important in terms of pure workflow processing. The challenge was everyone was using email. It’s like riding a bike, once you go from that to riding a motorcycle,
which is Fix technology, it can be scary, challenging and is a learning process.
“When you compare the functionality against the legacy email pricer, can you cover the products?” said Muñoz. “We can do more with Fix than with email for standardised flow products: for example, we can automate order amendments are are adding bonus enhanced notes, which is very quick and easy to do.”
Does the buy- and sellside get anything new using Contineo versus the email pricer? “We have functionality which is unique, such as order amendments, tap-ons, add-ons, and bookbuilding,” said Muñoz. “I don’t think email is going anywhere, because of the learning curve for a lot of investment
banks, but what we have today is way beyond what an email pricer can provide.”
The Barclays single-dealer platform was called Comet. “We found a cool graphic with a spaceman that we liked, which we used at conferences and in advertising and it stuck,” said Wood. “The platform was an entirely new concept for many people, so there were not good names to describe what we were trying to do. So we opted for a generic name.”
The other driver towards electronic heaven was a post-financial crisis imperative for issuer diversity. Dominance in structured products, particularly for local banks, often meant that local investor portfolios were jammed with structured products from one or maybe two issuers. Spotting the obvious systemic risk this dynamic created, regulators stepped in and created often guidance (rather than laws) requiring portfolios to be have maximum holdings for particular investments (especially complex ones) as well as limiting the amount of products from individual issuers.
The requirement for issuer diversity led to a number of new operational models, not least collateralised
Structured finance specialist
Cape Capital
AG DeltaDealstation First multi-issuer execution platform, today we cover 18 issuers on the platform
The platform digitally connects wealth management and investment product providers. The multi-asset best execution hub enables efficiency across the trade lifecycle. Financial advisors and dealers can abide by the requirements and principles of Mifid 1 and 2. Digital advisory powered by proprietary matching algorithms and data, artificial intelligence technology. Digital recommendation engines crunch data and link investment opportunities with personalised client profiles and preferences. Financial advice will be relevant and timely and augmented with roboadvisory services. Compliance powered by a service open API that covers KYC investment. Suitability and crossborder regulatory controls: supporting an open API approach; compliance can be injected into all stages of the advisory process; financial advice will be suitable and appropriate across regulatory jurisdictions
ITG-RFQ Hub Four-year track record for structured products, nine years on other supported instruments (options, ETFs); In Europe, more than 50 LPs, 22 of which quote and trade structured products daily Active coverage in France, Switzerland, Benelux and Germany; Independently owned and agency only: broker neutral and not conflicted in decisionmaking and development
Broker neutral, multi-asset bilateral trading platform that sends and manages requests for quotes electronically. Standardised and customisable RFQ provides a broader choice and deeper pool of otherwise hidden liquidity; Integrated bookbuilding tool is unique in offering assistance to structured product marketing campaign workflows. Benefits include: complete any trades efficiently, reduce operational risk; send price requests to multiple counterparties; price improvement through competing quotes and trade on the best price; refresh quotes in one click; send feedback to counterparts in one click; custom module meets pre-trade obligations to treat all payoffs (no limit) and respond to the Mifid 2 all-or-nothing and the treat customers fairly rules; allocate size across different booking centres, clearing accounts and custodians Best practices of transparency and retrievable audit trail: audit function captures all RFQs in complete, synthetic and organized reports; search function provides access to all historical RFQs (traded or not); stores all trade-related documentation (indicative and final termsheets, final terms/final confirmation, Kiids); integrated chat function, centralised and retrievable communication in the audit trail Performance-driven statistics for issuer reviews: access integrated statistics
NumerixOneview Used by both sell- and buyside. Ability to accurately define, structure, value and manage risk of any financial instrument, crossasset coverage, comprehensive analytics, ability to integrate to core banking systems through real-time interfaces for pre-trade client suitability checks and post-trade booking
Contineo First industry-backed network to access multiple issuers. Not a technology house but a consortium player. Strength lies in business and technical standards adopted by banks on the network. The only transaction network that aggregates proprietary data into actionable insights, with onboarding adjustable to client needs, with the fastest implementation time and more ways to connect
FinIQ - EQ Connect
Electronic execution system for equity- and FX-linked structured products, and bonds. Order taking, market venue execution, compliance checks, trade booking, valuation, documentation and lifecycle. Nobody does all seven
Halo Capital Independent multi-issuer platform with instant custom pricing and auction mechanism
Navian CapitalAtlas Multi-issuer, multi-product and multiwholesaler; advisor-centric system design; fully customisable; product lifecycle support
http://www.numerix.com/product/oneview-distribution
http://www.numerix.com/document/numerix-oneviewdistribution-fact-sheet
Unique data insights and automation to increase efficiency, lower costs, bring transparency and ideas to a fragmented market and meet regulatory and compliance mandates through business intelligence and data analytics. The model is built on a consortium framework that allows top tier institutions to build a utility that drives down costs and create efficiencies.
N/A
N/A
Provides the buyside with cross-issuer, product lifecycle support platform. Features, tools, and capabilities facilitate the offering of structured products, indexed annuities and structured UITs from product design through lifecycle support. More open, objective, customised features than other platforms.
OTCX Issuer neutral. Cross-asset class and global underlyings coverage; catering for all payoffs; global; delivered through a web browser, so no external software installation required
TPT/Wall Street Docs
Independent offering provided by fintech company with over 10 years’ experience in the structured retail products market and interfaces build out to over 20 of the largest issuers in Europe, the US and Asia. Strong focus on education and training and understanding.
CommerzbankPrimegate No preferences, fastest pricing is position one in the grid, streaming quotes instead of snapshots
VontobelDeritrade Multi-issuer platform covering 70% of sellside of the Swiss structured products market. Innovative and powerful STP with end-to-end booking into core banking systems
Independent RFQ platform specialising in structured products and OTC derivatives. Eliminates the large volume of emails, chats and voice communication during price discovery, negotiation and exchanging of documents. By providing a structured communication process for cross-asset linked notes such as equity, fixed income, FX and commodities, helps to evidence best execution. Large panel of Issuers. Offers a full audit trail of the quoting and order fulfilment lifecycle. Can incorporate all related termsheets and regulatory documents, such as Priips and Kids. Post-trade analytics reports to evaluate issuer performance within price discovery, quoting, and bookbuilding. User interface easy to access (via a browser) and intuitive, ensuring reduced costs, operational risk and time.
A spin-off of Wallstreetdocs, with a data structure covering hundreds of payoffs and thousands of feature variations and combinations. Senior management of qualified and experienced US and UK capital markets lawyers ensures in-depth understanding of applicable legal and regulatory framework and ability to deliver compliant technology
Common infrastructure; Börse Stuttgart is a premium partner
Easyto tap into technology advantages while allowing new products to be tailored and issued in short order. Quality of decision-making information, transparency, and efficiency of structured products. Open architecture approach provides high level of price transparency and competition to ensure true best-execution in real-time. Smartguide functionality uses extensive quantities of digital data for improved decisionmaking.
ModelityStructures
Vast selection of tailormade, on-the-fly financial products. Provides the ability to exponentially expand financial products offering (eg. deposits, notes) to clients from different markets, particularly retail. Modelity/ Financial Products Platform is fully operational and automates, manages and operates financial products throughout their lifecycle while Modelity/Marketplace is as a gateway to sellside institutions that trade in financial instruments. Used with Modelity/Optimizer, a software module that assists structurers, arrangers, IFAs, private bankers and professional clients to create and select an optimal product. By automating the lifecycle, including issuance of the product both internally or with a third party sellside, substantially lowers the costs of production and maintenance of the product. Lower ticket sizes and simplification of products enables a bank to approach new clients. For instance, a retail client with as little as US$5,000 can buy a bespoke product.
issuance, all with the intent of spreading risk for investors. Safer perhaps, but there were drawbacks. “We realised that the collateralised version was a bit more difficult to implement and, at least in our case, that would have reduced the yield quite substantially,” said Vito Schiro, a structured finance specialist at Cape Capital, previously a managing director at UBS and its wealth management division. “We found that clients were still a bit yield hungry, so they appreciated some issuers paying an excess yield: they were more sensitive to counterparty risk and wanted more issuer diversification, which we noticed in handmade structured products, leaving platforms to one side.”
While this approach did not include technology platforms, the automation of this process fed into
the creation of electronic platforms. Execution of single-dealer platforms was smooth from the start, except for some system outage, and also cases of market disruption event, where distorted quotes meant it was better to unplug the system and reengage when the market normalised.
The only drawback was budget, which limited the extensive plans dreamed up by the platform pioneers. The selective process that followed started with discussions with a number of issuers who would be prepared and ready to connect to the single-dealer platforms that were being developed.
“You need scale; building a single-dealer platform is expensive, not just in terms of money; you need the right competence and skills across many parts
Chief executive officer and owner FinIQ
the division, not just your ability to price and trigger products, but also the competence of how to automate the other processes through your
MULTI DEALER
How many underlyings are covered (Americas)?
How many underlyings are covered (Asia)?
How many underlyings are covered (Europe)?
operations department,” said Wood. “There are several approaches, and there won’t be a single, winning approach and, to some extent, some are complimentary.”
The single-dealer platform had been the first step, with no question of multi-issuer platforms, with the schemes more about finding a way to automate large flows of structured product requests, with tweaks to the FX model required mainly because that asset class resembled more an over-the counter market with equities more like a securities market. The small amendment to the FX models required the booking securities in client portfolios.
How many payoffs are covered (Americas)?
How many payoffs are covered (Asia)?
Over 25 payoffs across FX, equity, interest rates, credit, commodities and hybrids (OTC and notes)
fixed coupon note, daily range accrual note, bonus enhanced note, accumulator/
How many payoffs are covered (Europe)?
Over 25 payoffs across FX, equity, interest rates, credit, commodities and hybrids (OTC and notes)
MULTI DEALER
What liquidity/secondary trading is offered?
AG DeltaDealstation Unwind functionality and secondary market, however in Asia this is not yet market practice due to short tenors
ITG-RFQ Hub Workflow and trading lifecycle: cover private placement/bookbuilding for public offerings, grey market and secondary market
What post-trade services can you provide?
Event confirmation, monitoring, notification and documentation
Performance-driven statistics for issuer reviews; access to integrated statistics on issuer performance, hit ratios and alpha generated
NumerixOneview No secondary trading Trade lifecycle and position management, portfolio valuations, trade documentation management
Contineo Tap on to add new market order to launched product
FinIQ - EQ Connect Not yet
Halo Capital Yes
Navian CapitalAtlas Customised book of business created for each purchaser with tracking of performance of structure to help provide clarity on secondary trading
OTCX N/A
TPT/ Wallstreetdocs No liquidity, but show secondary prices from issuers
CommerzbankPrimegate All products listed on an exchange, market making by issuers
VontobelDeritrade
How long does trade execution take?
Depends on the complexity of the payoff; for flow products it is as quick as issuer bank execution
Depends on client expectations and types of underlyings and payoffs. Clients usually indicate expected answer time when they launch auction
Lifecycle events notifications and monitoring; execution drop copy for back-end; compliance and audit trail reports
If there's a coupon/barrier due or triggered, users notified either in advance or at-event or post-event using independent payoff framework: this is not linked electronically to issuer side coupon/barrier triggers
N/A
Adviser/buyside client customised book of business complete with:
term sheet repository; performance reports; secondary liquidity quoting; product lifecycle event notifications (maturity, calls, corporate actions); and smart product recommendation
Service-level metrics, KPIs for issuers
Lifecycle monitoring and notifications (eg. barrier breaches, approaching call dates, call events) performance reports onscreen and automated performance report documentation
Client will be notified when first quote available on exchange
Depends on the issuer
Execution time depends on payoff, market and issuer
N/A
Instant
Requirements of each issuer.
No execution, only information communication
Issuer dependent
One click to issue product, 2-60 seconds to confirm trade including legal documentation
Issuer standard Smart-guide roll-over sugestions; dedicated account managament team 2-4 seconds
ModelityStructures N/A
Mifid 2 materials (EMT and EPT), Priips Kid reports for live products; performance reporting – actual performance of live products and underlying instruments; event monitoring - constant monitoring and timely notifications regarding events during product lifetime (also part of Kid monitoring); maturity and settlement reporting
5 - 30 seconds depending on payoff
How many touchpoints would there be for pricing a U$150k uncapped call on the S&P 500 from origination to execution?
The execution of more complex payoff depend on the issuer banks; our platform offers from price discovery, execution and STP all in one
1. Payoff customisation and further instructions:
- Open a quote ticket, select a series of parameters in drop-down menus to customise payoff; or clone a past similar trade and adjust a few parameters
- Select issuers
- Optional: indicate deadline to issuers and add a comment, upload documentation (eg. term sheet from clients or marketing brochure for public offering)
- Send RFQ and wait for issuers to respond with prices
2. Execution process:
- Select issuer they wish to trade with from order book.
- Optional: Access pre-trade documentations (indicative term sheets, Kiids, Mifid 2, EMT)
- Optional: Update size and settlement
- Place order
3. Post-trade confirmation:
- Access final term sheet with strikes and confirm final level.
4. Order information and integrated chat from origination to execution is available audit trail (via one-click access)
2-5, depends on the issuer
Two touchpoints via the platform: one to get prices from multiple issuers, and one to select price and place order request. A final third touchpoint would be to download final term sheet from platform
One interactive session: minimum 30 seconds
One: touchpoint with instant pricing
Requirements of each issuer.
11 on average
Approximately 10 clicks
N/A
Three (pricing form, simulation, trade)
N/A
Through proven architecture and technology
Dedicated information security function led by the chief information security officer, responsible for policies, procedures and technologies in place to ensure the security, confidentiality, integrity and availability of client data. Policies include, but are not limited to: information and security, patch and vulnerability management and computer security incident handling. Technologies include: endpoint protection, including antivirus and application whitelisting software; proxies, including web content filtering and data loss prevention capabilities; intrusion detection systems monitoring corporate internet traffic for anomalous or potentially malicious traffic; firewalls; real-time event monitoring and logging through the use of a security information and event management platform; user behaviour analytics software to detect anomalous or potentially malicious activity, or outliers in access; patch and vulnerability management tools; mobile device management software; secure remote access including data loss prevention capabilities; email security, including anti-spam, anti-spoofing and data loss prevention capabilities; email monitoring; and an access review management system. Data transmission encrypted.
JDBC over SSL between app server and database HTTPS between front end and app server; data at rest is secured through transparent data encryption in SQL server; data access/Chinese Wall through role-based access control
Each private bank gets their own set of applications and databases, secured and segregated from other client databases
Protection via quarantine actions
Encryption
Multiple levels of security around access to the system and data encryption. Dual-authentication partnered with strict password requirements, including required periodic resets, ensure user identity is secure for authorised users. Data is rigorously encrypted to protect any trade records
All date fully encrypted in transit and at rest
Data at rest housed in secure private network; data in transit fully encrypted and user access to web services and API interfaces secured using OAuth2
Recent authentication and authorisation methods protect client and transaction data
SSL Certificate
Modelity is ISO 27001 certified for information security management systems
FX was also the starting point for FinIQ. “In 20062007, having done it for FX, we did for equities,” said Milind Kulkarni, chief executive officer and owner of the technology company. “Back then equity-linked products were not flow, they were tranche-based products. Then came the 20092010 problems, when a lot of time was spent on accumulators and target forwards, because a lot of these products were outside the system. We spent a lot of time on target redemptions, range accruals and accumulators, getting them into proper systems. The first pillar was FX; the second, equities; the third, long-term, multi-expiry structures.”
The conducting of pilot schemes in Europe culminated in the creation of fairly conservative,
index-based reverse convertibles for tenors that would quickly reduce in length, especially once the technology was exported to Asia, where the flow market is so dominated by shorter maturities.
“In many ways, a lot of the clients, specifically in Europe, did not have the expectation that that’s what they wanted and needed because they were not exposed to the benefits of email pricing, which was really in Asia,” said Wood.
The deals done on the platform were slightly different from the ones done in public issuance, which tended to have longer maturities.
In the first case, it was about covering basic markets, but more about offering payoff profiles. “The constraint was more, when can you start to do barrier reverse convertibles, worstof structures,” said Schiro. “From a commercial
point of view, we would rather add payout profiles than a second tier stock, because that was more of a volume driver than having a midcap stock on our platform.”
Initial ticket sizes were large, because every product was turned into a security, the opening of which took a bit longer and was more costly. Automating some of the steps behind elements like documentation helped drive ticket numbers down, with SFr50,000 becoming feasible and then competition driving banks like Credit Suisse to drop that level to SFr25,000. Ticket sizes came down as low as SFr5,000 and then SFr1,000, although the main benefit came when the size dropped to SFr5,000.
As well as allowing advisers to play around with pricing ideas with multiple requests for quotes, the technology also allowed the banks to see how many active clients they had, what kind of volume they were doing, and other, more meaningful metrics.
The time that requests for quotes could be held open was a further source of competition, although the conclusion appears to be that there is only so much advantage to be gained from holding prices for much longer than 30 seconds, with a margin attached to extended periods.
“We give a timer to all our banks for holding quotes open,” according to Kulkarni. “They are typically nine seconds, but for equities they are quite liberal. It is still seconds. Thirty seconds is good enough. As opposed to FX, in equities you have to wait for the bank to fulfil the order. Rejections are not common, but they do happen, if the delta or the price moves, they can still reject it.”
“In the last seven or eight years, there has been a fundamental shift from, at the time, a new thing and
a bit of a gimmick; now it’s core competence, and if you don’t have it, there is a question over how you operate,” said Wood.
By 2017, some single-dealer platforms estimated that they were processing around a third of their sales volume, an impressive amount when you consider that not all payoffs, such as worst-ofs, were available and had to be done by public issuance. “We never had a doubt that the platform was the way forward, but it took 18 months before the bank could see the traction that endorsed this belief,” said Schiro.
In the first days, single-dealer platforms varied and not all were on the desktop of client advisers. Some were created as business-to-business solutions, where they provided the wholesaler buyer entity in wealth management with a tool, structure and product from a bank in whatever chunk they wanted, which they would distribute in their own organisation. And while one of the clear advantages on offer was straight-through processing, not all of the single-dealer versions could offer this benefit.
“Nowadays, the tool is expected to work out whether the client is suitable to get the particular product, offering efficiency when ticking all the regulatory boxes,” said Schiro.
It also has to present reliable and competitive pricing. “If you are a major private bank in Asia and you are putting your volumes through a platform, it has to be competitive,” said Wood. “We obviously have differentiated pricing in terms of size, and the tenor of the transaction, but we wouldn’t see our pricing on the multi-dealer platform as any less competitive.
“In certain situations, you could better pricing by picking the phone up,” said Wood. “If you are doing a massive trade, the handholding of a salesperson may potentially get you where you want to be. Within SG, or even on the multi-dealer, it’s unlikely you get a better price than on the electronic platform by picking up the phone.”
There is some truth that a quote over a platform can be improved over the phone, but that’s a function of relationships, according to Muñoz. “But when you look at pricing on Contineo versus email, it’s the same price,” said Muñoz. “We closely monitor this, but, in reality, we see a benefit for Fix issuers to provide better pricing because we lower the cost to distribute products.”
There are two types of platform: one where you have pricing only and then email execution; and then execution from the relationship manager
point of sale, not the dealer, according to Kulkarni.
“The deals that are not done on the platform because of different payoffs, such as a memory coupon, which is not electronically priced by all the banks. We try to keep to the minimum
What liquidity/ secondary trading is offered?
What post-trade services can you provide?
Portal None Yes
BNP Paribas - Smart Derivatives
Live bid-asks with no minimum size accessible all day
CommerzbankCyclops All products can be listed or have their prices published on Bloomberg upon request. CBK provides intraday liquidity.
Societe Generale -SG Markets
UBS Equity Investor(single-issuer platform with one multi-issuer variation used exclusively by the UBSWM distribution channel in Europe)
Executable online secondary market
Valuation, secondary trading, backtesting, notifications on performance and events affecting products (barriers, coupon payment, maturity, autocallables)
No
Automated quoting and execution of secondary sellbacks to issuer
UnicreditMyonemarkets Secondary automated/ integrated
common denomination: for example, a bonusenhanced note, we added this four or five months back, because we have five suppliers pricing it. If we would have one or two pricing it electronically, we would not have it on the platform.
How long does trade execution take?
Real time
How many touchpoints would there be for pricing a US$150k uncapped call on the S&P 500 from origination to execution?
Real time
@1 minute 5
Valuations, event reporting, online confirmations, documentation, electronic contract signature
Trade blotters for monitoring of active, called and expired trades with term sheet depository; notification of upcoming expirations, barrier breach, early call and expiry; corporate action handling, one-way secondary market (ie. liquidity)
Fully automated documentation, audit function, coupon and maturity notices
Immediate for market order and as soon as market condition is met for limit order
Trades and order acceptance at the time of placing (immediately)
Full process from clicking on request quote to receiving preliminary term sheet, then clicking on submit order and receiving a final term sheet could be done in two minutes
Depends on setup of partner
N/A
How do you ensure the security of transactions and client data?
Telephone confirmation
All trades follow a workflow of validation and platform is linked to internal monitoring and audit system to ensure security of transaction and client data - our legal and compliance teams have access to the platform to see if the security checks are in place
Encrypted message
6 (can be fewer depending on personal preferences)
Encryption technologies with multi-factor authentication
Assuming the structure is available in specific region, user could execute trade without manual touchpoint
UBS standard authentication, including two-factor authentication for external access; annual penetration tests, distinct user role profiles with need-to-know access; segregation of production data from development
Complete process is automated (400 automated steps)
Platform does not deal with client data
Does
Do
Do
Do you
Do you provide immediate
Do you provide dynamic pricing to incentivise higher notionals?
“If you have 10 to 15 suppliers on the platform, then you go to the platform. If only a few, then you go by the old ways,” said Kulkarni.
Once established, the next challenge was working out whether or not and how to adopt open architecture, particularly as the challenge from multidealer platforms was starting to emerge, especially in Asia. “We always felt that you had to open up if you wanted to be a credible investment manager, be that for structured products or other investments, you need to be able to access the best-in-class providers,” said Schiro.
Connecting to all providers was not really feasible, partly due to expense, but also because there was deemed to be only so much choice worth offering. “The marginal benefit of adding one more, starting from 10, is not too much: eight or so gives you sufficient issuer diversification and adding more is probably not worth the extra cost,” said Schiro. “Not every provider covers every market.
“Sooner or later, the clients or the regulator would demand that single-dealer platforms were opened
to other issuers,” said Schiro. “Open up, lose some market share; but, less market share of a larger supply is a better outcome.” From the buyside perspective, there are also fiduciary responsibilities that are better served by more open platforms.
Regional autonomy was also a consideration, with central models meaning the enforcement of central standards on all, a mission that had long been stymied in the regions, partly because of the difference in product preferences. The result was sometime differing directions of development in Asia and Europe, with the US a completely different game, because of the very different standards of documentation, which it was almost impossible to deal with from Europe.
“Multi- and single-dealer are complimentary and sit side by side,” said Wood. “In some markets, multidealer is the obvious opportunity, because the products are highly standardised. Multi-dealers tend to work well when there are standardised products and also the market is fairly concentrated in terms of clients and providers. Single-dealer platforms hold their mark in product complexities that individual clients need. We have several clients on our singledealer where product variations are unique to them, that you could not do with a multi-dealer because the clients trade this product in this way, there is a
gimmick in the payoff and that’s the way they always do it and that’s the way they want to carry on. I see the two side by side.”
When it comes to core principles and governing factors, Contineo’s first priority was to be open, not just to any buy- or sellside, but also to any network or software providers, according to Muñoz. “So anyone who wants a front end who does wealth management and digital advice and wants to add a structured product component could plug into Contineo,” said Muñoz. “The second was standardisation, and this is where the FX component comes in: you can develop a standard that everyone can adhere to from a technical and business point of view, and that lowers the cost for the sell and buyside.
“We started with a network that had a pretty simplified workflow – it is not groundbreaking that you can get a price and place a trade – but what we knew was, if we do it correctly and get to a critical mass – which we have reached – we can provide a unique, innovative data solution,” said Muñoz. “That’s where we thought having that forward-looking view of adding lifecycle management coupled with data analytics is an extra value-add.
Does your platform offer a grid pricing view of multiple structures and underlyings?
Is there a platform or participation fee to participants in addition to any product revenuebased charges?
“The investment banks saw a demand and an opportunity to bring a new infrastructure tool to market, but not within the bank,” said Muñoz. “Where I came from, single-dealer platforms do not serve the private banks adequately when it comes to standardised flow products; when it comes to exotics, or alternatives, it has a lot of value. A multiissuer network is good business sense and where the technology and the market was headed anyway: efficiency and centralising digitally was more problematic in the past.
“Creating a consortium company was about having a neutral party operating and running it,” said Muñoz. “We avoid the conflict of interest of some of the multi-dealers in the past. It’s an open network, so, as we showed in December when Six invested in the company, we are open to central structured product market leaders joining the consortium and who can add value to what we have built. It’s not about the investment, which was not needed from a financial perspective, but about adding value to our clients.
“In 2015, when we launched, and in 2016, it was challenging to get people to move onto a motorcycle from a bike,” said Muñoz. “Now, our top three clients
Does the platform cater to public offerings in the respective regions?
What features do you plan to add in the next 12 months?
for the platform
New product types; support new regulatory required document, including Kid, lifecycle event notification and management
regions)
have a pipeline of additional products and advisory intelligence to assist users in decision making
SINGLE
BBVA Portal N/A
BNP Paribas - Smart Derivatives
CommerzbankCyclops
Societe Generale - SG Markets
Very flexible technology allowing easy addition of new payoffs: 98% of products can be priced and traded on the platform with automatic generation of documentation. One-stop shop platform from pre- to post-trade with access to services throughout product lifecycle (grid pricing, basket optimiser, backtesting and portfolio monitoring (barriers, coupons, maturity))
Low barrier to entry for the client; quick turnaround time for new payoffs and requirement; flexible and can be configured according to client preference N/A
Global cross-asset class platform, including credit-linked notes, providing easy user interface which supports less experienced users, right through to the most sophisticated structured product professional
UBS Equity Investor(single-issuer platform with one multi-issuer variation used exclusively by the UBSWM distribution channel in Europe)
UnicreditMyOnemarkets
One of the oldest automated platforms with a long history of trades and notionals executed in each region. Fully automated (pricing, term sheet generation and order submission) platform, even in markets where other platforms struggle. For example, we are the only platform that can do straight-through-processing of notes for US investors with notionals as low as US$100,000, allowing financial advisors to customise notes for even smaller investors.
Platform fully integrated into advisory process with creation of regulatory documentation (multilingual) in use since 2012
have 80%-plus of their order flows and 90%-plus of their RFQs. It’s a huge leap and come because there is more confidence in the workflow internally and the technology has matured. One to two percent in 2015 was about right. The orders that aren’t going through the system are structures that requires a little more handholding from the issuer.
Contineo has 25 banks on its network and its volumes in 2017 increased by more than 1,000%, because it had reached a critical mass, according to Muñoz. “It was chicken and egg for the first two years, but we got there,” he said. “Now we process billions of dollars of transactions per month.”
With hindsight, it would have been a benefit to have had more buyside involvement in the early stages, according to Muñoz. “The offer was made to the other players in the market, but they
Joined-up service for clients, allowing them to explore a vast range of product opportunities, solving for a large number of parameters. Realtime tradable pricing generated along with fully automated multilingual documentation; trading available online. Users can monitor their ideas and traded products from early stages of product ideas through full life of the product
A robust process tried and tested in multiple regions over more than 10 years. Globally, we are available to over 11,000 users. Since inception, we have traded over US$66bn on the platform globally with over 500,000 trades executed (Source: UBS internal data: 2004 – 2017)
understood the value proposition and where we were headed, but there was a natural fear that a multi-issuer platform like ours, particularly one like ours that had six banks participating from day one, created a competitive threat, more than an opportunity,” said Muñoz. “That’s the biggest difference between banks that embrace innovation as a path to help their clients compared to those who strictly out for keeping their market share.”
While they have ambitions to transplant their technology into other regions, the technology
companies challenged the bank-owned, singledealer platforms, the leading ones of which were delving into adding extra issuers. Both BNP Paribas’ Smart Derivatives and UBS’s Investor single-dealer platforms have added a very limited number of issuers, alongside Vontobel’s Deritrade, a bank-owned multi-issuer platform that started life as an option provider before wholeheartedly adopting whole structured product trades, although only successfully so far in Switzerland.
That said, Vontobel’s platforms has many admirers, impressed by the emphasis on creating a technology that emphasises the user experience with nice addons and robust compliance with European regulatory requirement: the tool includes all the Priips and documentation requirements. “We have seen some banks add other issuers to single-dealer platforms; the Vontobel offering is a good example,” said Wood. “It is successful because they have a clear niche in a market where they have distribution to a sector of the market that makes for us an efficient way of accessing the market. We are a participant in that.
The sales cost of trying to access the Swiss market as an individual may be too high.”
Should the banks at the forefront of single-dealer developments have been the basis for the multidealer model, or is that a task best carried out by independent technology companies? The question was fairly prominent, at least in Europe, five years ago, with the answer forced on two counts. Firstly, there was cost. After an initial enthusiasm about platforms, which was followed by large investment, technology budgets in banks were being turned towards coping with the slew of post-crisis regulation that was on its way.
Secondly, there was the more philosophical question about whether or not a bank or an independent technology company was best placed as the owner of a multi-dealer platform. The technology company option offered more obvious independence, although brought with it operational concerns: open all hours trading technology has to work and breakages present lost opportunity costs, an expense that
some doubted could be met by relatively small independent technology companies. On the other hand, would banks trust their data, contact lists and pricing technology with a direct competitor, with an added uncertainty over whether the owning bank would ‘take the last look’, ie. check the final terms and decide whether or not to take a unilateral decision to provide a better price.
Today it is clear that most of the market is embracing independent technology companyowned multi-dealer platforms, with the notable exception of UBS and also, to some extent, Credit Suisse. In Asia, the wealth management arms of the two Swiss banks have opted out of joining Contineo, although Credit Suisse has signed up with Fin IQ for at least some of its flow business.
“We are asked regularly whether we should open SG Markets to other issuers,” said Wood. “My current view is that we are good at what we do and there other venues where competent people can deliver multi-dealer platforms, and it becomes quite complicated in the complexities of independent and non-competitive features. Multi-dealer dealers we are competing with other banks, and if other banks are on my platform it creates too many questions around independence. Which is why Contineo works well for us, because they can present a clear independence from the issuers.”
The arrival of multi-dealer platforms, to some extent, was the fillip the market needed for standardisation, especially in Asia, which is where non-bank platforms started to prosper. So far, these technology providers of private banking products that are either independently owned by technology companies or by consortia of banks, have yet to extend outside the region.
It is early days for multi-dealer platforms in Europe, but there is no doubt it will come, according to Wood. “The challenges around Mifid 2 will bring change, as private banks start to understand the complexities around how and what they have to do in terms of the management and quality of execution reporting, best execution and those factors, multidealer platforms would help them on an operational basis,” said Wood.
“We are already seeing some people starting to make fairly crude choice in terms of the multi-dealer
platforms they are onboarding, simply because it gives them the ability to have a structured way of communicating by email,” said Wood. “RFQ Hub has gained some traction with its platform and is moving more into the automation of price discovery.
“The Six deal that Contineo has done brings interesting opportunities, because, from a lifecycling point of view and the aim is to bring some of our lifecycling capabilities to Asia and Six,” said Wood. “It’s a highly developed service in Europe, and you can see how it might become interesting in Asia.”
Europe is high on Contineo’s list of future plans, according to Muñoz. “We have demand from our private banks,” said Muñoz. “We do have a private bank that we hope to launch in Europe later this year. We also have the relationship with Six, which gives s strategic foothold in that market as well. They are very helpful and clearly that will go a long way. For a new entrant, having Six behind us will only help our cause. Six’s Connexor technology is dominant in the Swiss market and popular throughout Europe. We’ve baked this into our lifecycle manager service, which will go a long way in helping private banks with straightthrough processing. ”
The last year in Europe has been all about preparing for regulatory change, and there is still work to be done. “That change presents quite a lot of opportunity, because one of the ways you can service the business efficiency with Mifid 2 and Priips is through platforms, and the technology of automation,” said Wood.
“Once we get past that implementation, we can get back to innovation again,” said Wood. “We have lots of things in the pipe that we would to have a done a year or so ago. What more can you do with platforms, apart from get a price and a document? There is so much more we can do with the data, with additional advisory services. We are desperate to do them, we just have not been able because of the distractions of the regulation.”
FinIQ is also looking to Europe (“Something has to be done very, very soon,” said Kulkarni), but also has further plans for Asia. “We are working with a very large bank on something new in retail structured products in Hong Kong. “The payoffs, documentation and regulation are slightly different,” said Kulkarni. “They are collective investment-type of products and not private placements. The documentation and entire campaign workflow is different. The number of clients is huge and penetration is very low, so the competition is not with other banks, it’s with
www.structuredretailproducts.com
other products. There is an opportunity to grow the business without worrying about other banks.
“Even if it is retail, the functionality is price discovery, term sheets, execution, order management, bookbuilding,” said Kulkarni. “We start when the structure is revealed, after the chief relationship manager, who looks after the Know Your Client.”
The company also sees further opportunities for it private banking multi-dealer platform in the region.
“The big thing now in Asia is banks who have never sold structured products. Now we are seeing those, tier 2 banks come into the picture,” said Kulkarni. “All those banks with US$10bn of assets under management – the tier 2 banks – is where the opportunity is. The number 21 to 45, there is some market share to be gained there, and this market share will come at the expense of other products, not structured products. That would give people new business. Unless something happens in the stock market, there is no threat.”
SRP conducted a survey of 50 senior executives from the buyside who are either users or clients of single- and multi-issuer platforms globally. The preferred set up for transacting and executing structured products is the one provided by multiissuer platforms, according to the survey. The poll shows that 71.74% of respondents favoured multiissuer platforms compared to 28.26% who preferred single-issuer platforms.
A respondent seeking efficiency in its structured products pointed out that the number of single- and multi-issuer platforms had increased the complexity of this area as more resources are needed to cover all platforms out there. At the same time, she favoured a multi-issuer set up. “It doesn’t make sense for price discovery or lifecycle management to use multiple single-issuer platforms,” she said. “Ideally, you want a multi-dealer platform containing all the issuers you want to work with.”
The reasons for the choice varied from region to region and by type of business (private bank, asset manager), and include simplicity, best execution requirements, best pricing, better service and transparency. “Multi-issuer platforms provide a seamless and easier way of doing business and
different choices for content, delivery, education and market support in one location,” said one respondent. ‘Using single-dealer platforms multiplies operational risks and processes.”
The most used multi-issuer platforms by volume transacted are Bloomberg’s DLib (which gained 61.6% of the votes), Contineo (35.6%), FinIQ (30.5%) and Vontobel’s Deritrade (30.3%), followed by other multi-issuer platforms, such as Leonteq’s Constructor, TPT’s Transparitrade and OTCX, with around 23.2% of the votes, according to the survey.
From a business perspective, the multi-issuer platform most valued by respondents is also Bloomberg (65.7%), followed by Leonteq’s Constructor (23.3%), Contineo (17.4%), FinIQ (15.8%) and Vontobel’s Deritrade (13.3%).
Despite the shift towards the multi-issuer set up, single-issuer platforms are well-used for servicing the buyside. The reasons for the choosing singleissuer platforms include the use of own paper,
barriers around the use of multiple systems and the preference to deal with one issuer directly.
We use single-issuer platforms for smaller transactions,” said one respondent. “For larger trades, we use multi-issuer platforms.”
By volume transacted, the most active single-issuer platforms are Barclays’ Barx (69.5%), BNP Paribas’ Smartderivatives (59.5%), SG Markets (59.1%) and UBS Equity Investor (29.4%); whereas, from a
business perspective. the most valued single-issuer platforms mirrored the ranking of most used venues by volume with similar percentages.
Aside from pricing, the most important features of electronic click and trade platforms for structured products are: execution and post-trade (40%); booking and risk management (36.3%); lifecycle management and secondary market access (31.1%); valuation (28.8%); and portfolio management (13.6%).
Apart from pricing, please rank the most important features for an electronic platform
Respondents also highlighted a number of challenges of electronic trading, including security, transparency and costs, as well as user friendliness and human errors, but also the lack of payoff types available and the facilities to trade directly the OTC swap. “Platforms development is extremely important for the buyside business, as it reduces manual processes, operational risks and turnaround time to service our clients,” said one respondent. “However, we miss efficient request for quote (RFQ) platforms for exotic derivatives (options and swaps) in one pricing process, feedback from different investment banks and best execution.”
Although single platforms “provide flexibility in the product design process, execution is, in most of cases, manual”, according to another respondent.
Other issues surrounding electronic trading of structured products include setting up Fix connections, lack of flexibility around complex product description and straight-through processing, as well as operational challenges in the execution process, missing term sheets, and missing (UK and US) tax codes.
Difficulties in comparing platforms and the fact that buyside companies prefer to deal directly with an
issuer may slowdown the adoption of multi-dealer platforms, while conflicts of interest were also highlighted as an issue obstructing adoption.
However, the main reasons that have prevented a wider adoption of platforms were stated as opaque reporting and fees, as well as lack of transparency and functionality.
The reasons for plugging into or stopping use of an electronic platform for the distribution of structured products tended to relate to operational and technical issues. “I would stop using a platform if the pricing was inconsistent and not competitive, and if I cannot price the structures I want,” said one respondent. Opaque reporting and fees would also provide the basis for turning off a connection.
Lack of investment in a platform resulting in technical errors, frequent downtime as well as slowness, poor pricing and limited product choice were also highlighted as factors that would push some distributors to stop using a platform.
Another respondent said that lack of transparency, and constraints such as a lack of flexibility and functionality, would shed a negative light on any platform. “Not getting data on a regular basis,” said another respondent. “And, if I can’t see a screen
with the best opportunities and pricing across the board of providers.”
Fees and costs related to the use of platforms were also a source of concern, including issuer charging fees on top of platform fees, or a deficient aftersales service.
Despite the number of platforms and the functionalities offered, there are a number of features and tools that are missing or could be improved, mainly around payoff types and underlyings, but also pre- and post-trade tools, such as portfolio asset allocation, complete lifecycle management, and straight-through processing. “I want comprehensive coverage of products and issuers,” said one respondent. Better solutions for optimising underlyings is also, according to the same respondent. “We also want better execution tools for fast trading and an interface that talks to our internal system.”
The ability to modify portfolios and combine product types on one platform is also desired and needs to be improved to facilitate portfolio performance reporting, analysis, and comparison. “The ability to modify portfolios and combine product types on one platform is key to simplifying our business,” said another respondent. “At the moment, you have
to use one platform for ETF product information and another one for a different product.” Another respondent said that platforms have a market specific focus and need to open up and have a “non-action based international approach” so that Swiss clients can deal with distributors in Singapore.
While a common language and nomenclature for products is something that the platform’s market will deliver over time, although transparency around counterparty risk and surveillance mechanisms remain at the top of the agenda for users.
Overall, the most valued features on multi-issuer platforms across respondents were access to a “wide range of product manufacturers”, “speed to execution”, “analytics for audit trails”, “possibility of live audits”, “e-docs and ability to store all documentation in one place”.
As far as the shift from single- towards multi-issuer, one respondent said that “the customised nature of structured products makes having a flexible issuer platform very important for us and we need this to be standardised across all issuers, ideally.”
According to a US respondent, many platforms concentrate on providing deliverables that solve one or two “pain-points” in the structured notes investment equation. “Structured notes is still a very opaque market and also a fragmented one,” he said. “As technology adoption grows, multi-issuer platforms bring simplicity, efficiency and transparency, which should, in turn, help to consolidate the market.”
As the structured products market increases in size and complexity with average ticket sizes getting smaller and a higher concentration on commoditized structured payoffs, financial institutions have been forced to invest in technology risk management systems and consolidate their own risk management capabilities to address the issues around the number of siloed and fragmented processes involved when transacting structured products.
Structured products platforms are capitalising on the demand for consistent analytics, a single view of risk, cross-asset trading, front-to-back operations, position management, margining and reporting, as they can offer all those functionalities on a single integrated platform.
In this section, we provide a timeline of all the developments around platforms, including new launches around e-commerce with a timeline of stories covering developments from the first distribution platforms to initiatives around ‘metatool’ and ‘click-and-trade’ platforms, as well as multi-issuer platforms during the last three years.
28 January 2014
Deutsche Bank adds to distribution through Vontobel’s Deritrade platform
Deutsche Bank joined Vontobel’s “click and trade” multi-issuer platform Deritrade to distribute its structured products range in Switzerland alongside Morgan Stanley, Societe Generale and Vontobel. The Swiss bank said that all structured products listed on Deritrade are fully compliant with the investor protection rules set out in the European Markets in Financial Instruments Directive, including the provision of price comparison.
Vontobel said that issuers joining its multi-issuer platform will have a competitive advantage in the market for tailored and transparently comparable structured products.
7 March 2014
UBS joins Vontobel ‘click-and-trade’ platform Deritrade
UBS joined Vontobel’s “click-and-trade” multiissuer platform Deritrade to distribute its range of structured investment solutions in Switzerland. With the opening up of the platform’s issuer-neutral structure, Vontobel said it was aiming at managing the entire structured products process chain – from the design phase through to distribution – more efficiently. The development of the platform was a consequence of both client demand and regulation and that the fully automated multi-issuer offering from Vontobel also provides price transparency and is therefore in line with new regulatory requirements, according to Gerhard Meier, head of multi-issuer platform at Vontobel.
25 March 2014
Vontobel rolls out deritrade in Singapore
Vontobel launched the “Deritrade pricer” platform for structured products to the Singapore wealth management market. The free, fully-automated platform which provides live pricing feeds for customised equity-linked notes and fixed-coupon notes with Asian underlyings. The platform is available only for banks, merchant banks and brokers licensed by the Monetary Authority of Singapore and provides pricing on 18,000 customised structured products, including more than 1,000 underlyings and 100 currency pairs. Vontobel appointed Fredy Flury as head of financial products Singapore and chief executive of Vontobel Financial Products (Asia Pacific) in November 2013, in a move to bolster its market development efforts in the region and lead the launch of the platform in Singapore.
28 March 2014
BNP Paribas pushes ‘Smart Derivatives’ in Asia
BNP Paribas announced plans to capitalise on the success its Smart Derivatives platform in Europe by
“accelerating” its marketing initiatives in the Asia Pacific region. The platform was first marketed to Asian clients in the middle of 2013 and BNPP won approval from the Hong Kong Monetary Authority and Monetary Authority of Singapore to trade via the platform. The web-based platform made its debut in May 2012, targeted at external clients, such as private banks and asset managers, and is now well established in Europe. The bank said that other challenges in the region for providers developing clickand-trade platforms were related to finding a balance between operational efficiency and responsiveness to local specificity, as there are a multitude of structuring needs across different jurisdictions in Asia due to different investment cultures and the varying pace of infrastructure developments.
31 March 2014
Bloomberg uses Lexifi’s Instrument Box to bolster derivatives and structured products platform
Bloomberg announced an agreement to use Lexifi’s Instrument Box into its financial data and information platform service Bloomberg Professional. The Instrument Box is core derivative technology which provides a scripting language for contract description and automatic user interface generation, exhaustive life-cycle processing and reporting, generation of optimised pricing code and an integrated solution for document generation. The move was aimed at enhancing its derivatives platform, which includes capture screens, trade sheet generation, flexible and simplified scripting language for contract creation, reporting, and life-cycle processing with audit trail and seamlessly integrates with Bloomberg’s distribution network. The Bloomberg Professional service also provides advanced analytics, fully-integrated market data and financial models for pricing and risk. Lexifi said that the integration of its modelling language for finance, which captures terms and conditions of financial contracts, and Instrument Box will provide subscribers with contract details about derivative lifecycle processing, pricing and reporting.
Boerse Stuttgart acquires Citi’s Cats trading platform
Boerse Stuttgart acquired Citi’s automated trading system (Cats) for bilateral trades, which includes OTC transactions in structured products, in a move that will change trading in the German market as well as creating a wider platform for the exchange’s European rollout. The two signed a binding agreement to launch a new company that will own the platform. The
business will be managed by Rupertus Rothenhäuser, head of marketing and sales at Boerse Stuttgart, and Chuffy Hunter, head of automated trading services Citi. The acquisition is in line with the exchange’s plans to create a pan-European market for structured products, with a central hub preferable to repeating the same product with a different ISIN code listed in each European country. As a result of the regulator’s efforts to mitigate counterparty risk through the use of central counterparty clearing and improve the overall risk profile of the OTC markets, a number of European exchanges lobbied hard for increased supervision on off-exchange trading as issuers moved to the OTC space to take advantage of cheaper execution of trades. Despite the pressure from structured products exchanges in Europe, Mifid 2 has established that OTC platforms would not be organised trading facilities, and that structured products can continue to be traded on an OTC basis although under tougher rules.
12 May 2014
Vontobel snaps up click ‘n’ trade competitor
Vontobel acquired 100% of the shares of Derivative. com, effectively removing the competition in multiissuer platforms. Issuers offering and quoting prices for their structured products on the multi-issuer platform operated by Derivative.com including Zürcher Kantonalbank, Bank Sarasin, Natixis, ING, Commerzbank, Nomura, RBC, Morgan Stanley, JP Morgan and Rabobank, were added to Deritrade. The move followed Vontobel’s recent launch of its Deritrade pricer platform for structured products to the Singapore wealth management market at the end of March. Vontobel also announced the addition of UBS to its click-and-trade multi-issuer platform in March. Derivative.com was one of the first multiissuer independent issuance platforms for structured products. The trading platform was launched in 2010 and was aimed at banks and asset managers looking for quotes on tailor-made issuance of structured investment products with multiple issuers.
15 May 2014
Vontobel: Multi issuer platforms put investors at the centre of product distribution
In an interview, Gerhard Meier, the head of multiissuer platform at Vontobel, who was previously responsible for UBS’s equity Investor platform, said that the first stage of development in platforms brought automation, reduction of production costs, scalability to the market and the ability to create tailormade products at the point of sale. However, the introduction of new regulation around best execution
meant that single-issuer platforms had to change to an open architecture approach so that different providers can feed into the platform. Deritrade generates different quotes from different issuers for the same bespoke product for a minimum of CHF50,000.
16 May 2014
Superderivatives launches multi-bank trade execution platform
SuperDerivatives (which was acquired by Ice in September 2014) launched SDeX, a new multibank multi-asset trading platform enabling users to request tradable prices from all of their counterparties on any trade they can price in SDeX, regardless of its complexity, and execute at the best price. The platform covered simple vanilla swaps and complex multi-legged structures, and supported all asset classes including precious metals, FX, oil products, freight, credit derivatives and equity derivatives. Interest rates derivatives and other assets were due to become active later in the year. The platform was supported by 26 market making banks on a very wide range of products from simple vanilla swaps to strips of Target Redemption products. SDeX covered the entire workflow, including pretrade analysis, trade execution at the best price available in the market and post-trade confirmation and reporting. Superderivatives was preparing to connect SDeX to clearing services.
13 October 2014
UBS opens up issuer platform to third parties
UBS opened its structured products platform to other investment banks in a move to improve its position in the market. The Swiss bank launched a pilot phase to offer investment banks access to its new issuance platform called EQ/FX Investor which is connected to 150 client advisers in Switzerland. In this first stage, Vontobel and Barclays were plugged into the platform and were able to provide pricing to financial advisers requesting quotes on structured investments. The Swiss Structured Products Association said that multiissuer platforms are the next logical step following the success of fully automated single-issuer metatools in the Swiss market. The UBS move is in line with the bank’s open architecture set-up and is also the firm’s response to the new regulatory and market environment in the structured products marketplace to improve price transparency, diversify issuer risk and lower costs. Market sources were expectant to see how the pilot phase evolves as if successful the bank will be opening up its client adviser network to other structured products issuers.
27 October 2014
Zuercher Kantonalbank joins Vontobel’s deritrade platform
Zuecher Kantonalbank (ZKB) became the sixth issuer to join Vontobel’s Deritrade multi-issuer platform. ZKB, which ranks among the biggest providers of structured products in Switzerland, joined the five issuers participating – UBS, Deutsche Bank, Morgan Stanley, Societe Generale and Vontobel – which together represent more than 70% of the exchangetraded volume of structured products in Switzerland. The multi-issuer platform offers products and prices of the main providers in the market and is aimed at opening up new opportunities for client advisers. Bespoke investment solutions can also be created using the click and trade platform.
30 October 2014
UBS to launch Asian e-platform
UBS unveiled plans to launch an e-platform for financial products in the Asia-Pacific region targeted at private banking and institutional investors as a way to deliver better investment solutions to clients and maximise its technology capabilities. UBS also plans to roll out an e-platform for investment products to catch up with the latest technology developments, targeting private banking and institutional investors. UBS pointed to the rapid development of e-commerce in China and highlighted the recent move from Alibaba, the biggest e-commerce company in China, to develop an online banking platform for investors to purchase wealth management products via its online payment system Alipay.
8 December 2014
New Apac multi dealer platform launched
FinIQ has launched a multi-asset, multi-dealer connectivity platform for equity- and FX-linked structured products. Delivered in association with Thomson Reuters, the FinIQ EQ Connect platform is dealer neutral and designed for the private banking and wealth management industry. FinIQ said the platform offers connectivity to top marketmakers in the equity-linked space for products such as equity-linked notes, range accruals, fixed coupon notes, accumulators and decumulators, while enabling optional integration with other core banking systems. The FinIQ EQ Connect platform is powered by Thomson Reuters Datascope Select, which provides a broad universe of cross-asset, intra-day and end-of-day pricing, reference data and evaluated pricing services. Thomson Reuters is
www.structuredretailproducts.com
also hosting the FinIQ solution as part of a growing ecosystem of services available within its Elektron Managed Services hosting environment. Deutsche Asset & Wealth Management was the first company to connect to the platform for the distribution and transaction processing of its treasury and wealth management products.
20 January 2015
Contineo rolls out first open multi issuer network for structured products
A consortium of banks including JP Morgan, Goldman Sachs, HSBC, Barclays, BNP Paribas and Societe Generale, and technology company AG Delta have launched a new open messaging network in a move to provide greater access to equity-linked structured products for private banking and wealth management firms. Contineo’s open-messaging network provides private banking and wealth management firms with greater access to equity-linked structured products as well as their counterparties through a web-based interface and a set of open application programming interfaces. Contineo supports messaging for equity-linked notes, including knock-out equity linked notes, accumulators/decumulators, fixed-coupon notes, daily range accrual notes, and OTC products through a single API connection for Hong Kong and, more recently, the US, Singapore and Japan.
24 February 2015
Societe Generale adds OTC functionality to Alpha platform
Societe Generale has added a new OTC functionality to its Alpha electronic trading platform to allow distributors, private banks and wealth managers to price OTC instruments alongside the platform’s structured products. The new capabilities were aimed at clients who trade using their own paper or issue their own structured deposits. SG is now in the process of enabling clients to service the whole life cycle of the bank’s offering both from a front- and back-office perspective.
5 March 2015
Contineo adds Julius Baer and opens platform to tech providers
Contineo has added Julius Baer to its multi-dealer platform becoming the first private bank to sign up to receive prices on structured products. Julius Baer will use Contineo’s web-based interface to
access multiple-issuers of structured products starting in July this year in Asia.
17 March 2015
Vontobel adds four Apac distributors to deritrade
Vontobel has added LGT, Maybank, KGI Securities and Union Bancaire Privée as the first four AsiaPacific distributors of structured products to join its Deritrade multi-issuer platform.
31 March 2015
Leonteq, DBS, Avaloq and Numerix to create structured products platform in Asia
Leonteq, DBS, Avaloq and Numerix have agreed to launch an integrated multi-issuer investment products distribution system with the aim of enhancing the offering and distribution of structured products and with the Asia-Pacific region as its initial prime focus. Leonteq said the core differentiating factor of the platform will be the digitalisation of the full value chain to private banks in the investment products arena. The main elements covered in this context are pre-trade analytics, multi-issuer price requests, standardised documentation, trade processing, direct booking and product set-up within the core banking system, lifecycle management as well as post-trade analytics. All these services will be fully automated and integrated into the workflow process through DBS.
24 April 2015
Contineo implements ‘messaging backbone’ via Ullink Fix network
Contineo has reached an agreement with Fix technology and network provider Ullink to implement and manage the platform’s Fix network in a move to lower costs, increase products access and provide support in all aspects of risk management.
5 May 2015
Boerse Stuttgart capitalises on Cats acquisition and Euwax reports in pan-European push
Boerse Stuttgart’s acquisition of the Nordic Growth Market, the country’s second largest exchange, in 2008 kickstarted the German exchange’s expansion in Europe. SRP spoke to Rupertus Rothenhäuser (pictured), head of marketing and sales at the exchange. In April 2014, Börse Stuttgart acquired Citi’s automated trading system (Cats) for
bilateral trades, which includes OTC transactions in structured products, in a move to create a panEuropean market for structured products and a central hub for product issuers. Cats is not just a bilateral OTC trading system, it is also acting as a routing service for brokers and market-makers to stock exchanges.
7 May 2015
JP Morgan’s Nexus platform doubles trading activity in a year
JP Morgan has seen the notional value of trades on its Nexus platform increase by five times in the last three years, and more than double in the past 12 months as a result of an increased number of institutional clients becoming comfortable with automation and the self-structuring of products. Advances in technology are transforming what was traditionally a manual area of the market, allowing institutional investors to build their own products and then monitor and adjust them online – delivering “the ultimate in flexibility” in how they manage their portfolios and serve their own clients.
2 June 2015
Cathay hires Numerix to cope with increasing demand in Taiwan
Cathay United Bank has opted for Numerix Treasurer to respond to increasing demand in the local structured products market. Numerix Treasurer automatically generates mark-to-market and Greeks allowing sales to analyse trade details and perform pre-trade scenario analysis. The Treasurer allows sales to conduct scenario analysis from the portfolio view and provide customised suggestions, and provides a wide range of reports which can be sorted by customer, product category and currency pair helping banks to meet current regulatory requirements for detailed PnL reporting. Numerix’s activities in the Asia-Pacific structured products market have increased in 2015, following the launch in March of an integrated multi-issuer investment products distribution system in collaboration with the Leonteq, DBS and Avaloq.
25 June 2015
JP Morgan joins Deritrade multi issuer platform in Switzerland
Vontobel has announced JP Morgan as the latest addition to its Deritrade structured products multiissuer platform in Switzerland following its move
last week to expand activities in Asia. The US bank will join Deutsche Bank, Morgan Stanley, Societe Generale, UBS, Vontobel and ZKB, which account for more than 70% of the exchange-traded volume of structured products in the European country.
24 June 2015
Thomson Reuters rolls out pricing tool for structured notes and OTC derivatives
Thomson Reuters launched Pricing Service Plus (TRPS Plus), a new Datascope capability for structured notes and hard-to-value, OTC derivatives aimed at increasing transparency into the evaluated price, methodologies and market data associated with the pricing of products. Datascope Select now covers more than 650 structured notes and derivatives. Combined with the legacy-Pricing Partners financial library, which was acquired in by Thomson Reuters in June 2013, TRPS Plus will allow Datascope Select to deliver transparent pricing on all standard or non-standard derivatives. Valuation and risk reports will also be delivered intra-day or end-of-day according to customers’ requirements.
7 July 2015
Vontobel adds CIC to Deritrade platform in Apac
Vontobel Financial Products has added Crédit Industriel et Commercial to its Deritrade multi-issuer platform in Asia Pacific. Deritrade has around 800 clients and more than 3,000 users in five countries.
13 July 2015
Thomson Reuters rolls out valuation ‘Navigator’
Thomson Reuters has launched Valuation Navigator, a software solution for automation of reference data and pricing workflows designed to enable back-, middle- and front-office teams to analyse and search across complex data sources, compare multiple pricing options and optimise valuation and risk activities. The tool aims to improve transparency by streamlining data collection while eliminating “tedious spreadsheet-based processes” to simplify net asset value and profit and loss calculations. Through data consolidation and reformatting, users can integrate feeds directly into existing internal systems and gain insight through access to market-observable inputs and source data that supports evaluated pricing.
www.structuredretailproducts.com
Thomson Reuters bolsters credit risk monitoring tools
Thomson Reuters has beefed up its credit risk capabilities by adding Starmine Credit Default models to its Datascope suite in a move that brings together on one platform reference data, core ratings agency data, pricing and analytics. The models provide data services that enable automated and continuous monitoring and review processes to improve a company’s ability to predict credit events as early as possible. Regulations such as the Basel accords and Dodd-Frank outline how companies should assess their credit risk exposure, underscoring the need for greater focus on risk management to meet compliance requirements.
Barclays Wealth to scale via AG Delta’s Dealstation for structured products
Barclays Wealth has reached an agreement with Singapore-based AG Delta to go-live in Hong Kong and Singapore with Dealstation, the technology company’s multi-issuer platform for equity-linked structured products. The agreement is based on improving efficiencies by eliminating manual email pricing processes, with an electronic platform to support requests for quote/execution to an extensive panel of trading counterparties and a wide universe of product payoffs. Unique elements of this initiative include streamlining workflows between relationship managers and dealers, and between dealers and issuers including normalising communication standards across global issuers not just for quotes and requests for execution, but also processes, documentation and events during the pre-trade-post trade lifecycle with an electronic workflow supported across structured products and note/OTC derivatives payoffs. The Dealstation module that went live is part of AG Delta’s digital wealth investment, workflow and compliance platform, which is in production with thousands of bankers, across all asset classes, retail, wealth and private banking segments in over 15 markets globally.
29 September 2015
ITG RFQ-hub targets buyside in US push, eyes LatAm
ITG RFQ-hub has expanded its network of liquidity providers and entered the North American market. The expansion into the US is part of the company’s plans to leverage its capabilities and expertise of European
markets. Over the past few months, the company has added eight undisclosed sellside liquidity providers in the US and 10 in the Europe, Middle East & Africa (Emea) region, said Llamas. On the buyside, the company has added seven clients in Emea and has five joining in the US. It has also been granted membership of the Swiss Structured Products Association (SSPA). ITG RFQ-hub is available on a standalone basis or as part of the company’s Triton execution management system. ITG has also completed the integration of ITG RFQ-hub with the ITG Position Manager order management system, enabling global macro and multistrategy hedge funds to trade and book a wide range of listed and negotiated derivatives, exchange-traded funds and structured products with multiple liquidity counterparties. ITG RFQ-hub joined the SSPA as a passive member earlier in September.
6 October 2015
Thomson Reuters adds advance view of instruments and securities
Thomson Reuters has launched Datascope Equities Plus, an enhanced, customisable bulk data feed offering continuously updated reference data and end-of-day pricing on instruments and securities. The company’s Datascope Solutions, which covers more than 650 structured notes and derivatives, already provides pricing, referential and security master data attributes that support pre-trade, trade and post-trade operational workflow requirements across the front, middle and back offices of financial institutions. Datascope Equities Plus will provide an advance view of instruments and securities before the start of each trading day.
15 October 2015
Fubon opts for Thomson Reuters structured products pricing and risk management technology
Fubon Financial Holdings has selected Thomson Reuters to provide the technology for pricing structured products and managing risk in exotic portfolios.
2 November 2015
Vontobel trebles issuance on multi issuer platform in third quarter
Vontobel’s Financial Products reported a turnover of over CHF500m (€459m) on its Deritrade multiissuer platform in the third quarter of 2015, which represents a threefold increase in issuance compared with the same period last year.
7 December 2015
Vontobel adds smart and crowd data to Deritrade platform
Vontobel Financial Products has launched a customisable decision-making tool to buy structured products by using smart and crowd data, aimed at relationship managers and asset managers in Europe and Asia Pacific. The Deritrade Smartguide makes user activity and market data accessible to the bank’s multi-issuer platform users with “unparalleled insights” and a “new level of transparency” in the structured products market, according to Gerhard Meier (pictured), head of Deritrade’s multi-issuer platform. The new tool provide users a new functionality to compare products against a wider context of alternative options in order to inform the decision making process.
16 December 2015
Barclays offloads risk analytics and index business to Bloomberg for US$790m
Bloomberg has entered into an agreement to buy Barclays Risk Analytics and Index Solutions (Brais) for approximately US$790m (£520m), with completion expected by the middle of 2016. The bank’s division in charge of benchmark and strategy indices, portfolio analytics, risk and attribution models, and portfolio construction tools span global markets covering multiple asset classes, most notably the Barclays Family of Aggregate Bond Indices. Bloomberg has also increased its investment in Port, its multi-asset portfolio risk and analytics tool, and is seeking to expand in this area with the acquisition of the intellectual property in Point, Barclays’ equivalent, which will operate Point for 18 months post completion in order to help clients transition to Port.
7 January 2016
Bloomberg boosts new DLIB with Lexifi technology
Lexifi and Bloomberg have expanded their technology integration via Lexifi’s Instrument Box which is used to support the new Bloomberg Derivatives Library (DLIB) on the Bloomberg Professional service, the company’s financial data and information platform. DLIB provides tools for the derivatives workflow, from idea generation and market-data analysis to structuring and pricing of new products, using standard templates or advanced scripting capabilities which are supported by Lexifi’s financial contract description language, MLFI (Modeling Language for Finance). By using
Blan, Bloomberg’s simplified scripting language built around MLFI, users of DLIB can formally describe any financial instrument and automate the entire product life cycle. DLIB and Bloomberg’s pricing models have been ‘tightly integrated’ with Lexifi’s fast and scalable pricing infrastructure and proprietary real-time code generation technology. This, combined with the flexibility of MLFI, will enable Bloomberg to vastly reduce the time-tomarket for covering new product structures in DLIB. Bloomberg has included Lexifi’s Instrument Box in its financial data and information platform service Professional in March 2014.
29 January 2016
Land’s end for Asian multi dealer structured products platform
The expected launch of the integrated multi-issuer investment products distribution system, known as the Land initiative, has collapsed, according to sources. The platform was announced in a letter of intent signed by Leonteq, DBS, Avaloq and Numerix in March 2015. The Swiss structured products provider also announced in the results release that the cooperation on the partnership with DBS, Avaloq and Numerix to develop and implement an integrated multi-issuer investment products distribution system (known as the Land initiative) has ceased “due to diverging interests on some business model and exclusivity discussions”. Leonteq stated, however, that it will continue to implement buyside automation initiatives on its own and with partners such as Avaloq.
17 February 2016
Contineo plugs-in Natixis as an issuer, adds four to buyside
Contineo has added JP Morgan Private Bank and BSI as buyside subscribers to its messaging network, and Natixis as a new issuer. The platform is also in talks with two other global private banks, HSBC and BNP Paribas, which are considering trialling the network’s buyside facilities, according to sources. Current network participants include Julius Baer, Barclays, BNP Paribas, Goldman Sachs, JP Morgan and Societe Generale.
10 February 2016
Vontobel adds trading function to private bank app, pushes robo advisory capabilities
Vontobel has launched a new trading function in its Mobile Private Banking app to allow private banking
www.structuredretailproducts.com
clients to make transactions at any time, wherever they may be. This development is part of a number of initiatives around the recently launched Deritrade Smartguide aimed at bolstering the bank’s B2B4C offering by combining advisory, pricing, structuring and engineering and trading functions in one place. Although Vontobel is not focused on advising on any particular products at this stage, the platform has the scope to cover a number of areas of development in the structured products market such as the insurance and pension funds segments.
16 March 2016
Bloomberg releases cross-asset security-level liquidity risk model
Bloomberg has launched the Liquidity Assessment Tool, a new functionality pioneering the use of machine learning to estimate liquidity risk in response to global regulatory requirements for institutional investors to factor liquidity into risk and pricing models. The technology is targeted at risk managers, portfolio managers, traders, and compliance officers and provides a standard definition of liquidity and a consistent approach to measuring the expected cost of liquidation for a specific volume of securities, and a desired time horizon. The new tool also provides a score designed to indicate security-level liquidity with respect to liquidation cost and its distributions across different volumes.
18 May 2016
Societe Generale rolls out SG Markets as Alpha is discarded
Societe Generale has closed down its Alpha electronic trading platform for structured products following the migration of all its clients to a new umbrella platform for structured products desks, distributors, private banks and wealth managers called SG Markets Structured Products which offers an integrated offering. The interface which has been revamped via the new HTML 5.0 technology, which is a “future-proof platform-agnostic technology” that is supported by the different types of devices (smart phones, tablets, PCs), to “recognise the fact that the world is going global, and use different devices”. All the pricing data going through the platform will be stored in the platform’s back-end and “can be extracted” from any of the services offered by the bank. The platform also includes a real time jargon/educational tool to access concise and clear information about how payoffs work, as well as detailed product summaries for any products priced through the platform.
17 August 2016
Vontobel rolls out digital structured products platform in Germany
Vontobel has launched a new open digital platform for structured products in Germany. The platform, mein-zertifikat.de, which will go live on August 30, allows advisers of banks and savings institutions and asset managers as well as private investors to create, order and then invest in individual structured products in real time. The service, which is initially limited to reverse convertibles, discount and capped bonus certificates, will be expanded to a multi-issuer platform by providing their products to further issuers in Germany,
3 October 2016
Vontobel opens research and product platform to external asset managers globally
Vontobel has opened its digital navigation system EAMNet to provide all external asset managers quick access to the bank’s full range of service, research and product platforms, in a move to concentrate a comprehensive service to their clients. In addition to the relevant digital service platforms, the new fully integrated service, research and product platform provides EAMs with access research, investment advice (Researchnet) and portfolio construction tools, as well as the bank’s MIP platform for structured products, Deritrade. Meanwhile, the platform’s Message Center will enable asset managers to contact and exchange information more actively with their personal relationship managers at the bank.
3 October 2016
Thomson Reuters and Clifford Chance partner to provide documentation and negotiation services
Thomson Reuters and Clifford Chance have joined forces to help global financial institutions tackle their most pressing regulatory obligations relating to margin rules for uncleared OTC derivatives. Using a new approach to contract negotiation and documentation, the partnership will provide ‘a flexible, rapidly scalable, technology-enabled solution’ that will enable financial institutions to meet their current multi-jurisdictional regulatory obligations as they continue to evolve in the future.
7 December 2016
Leonteq pushes platform development roadmap amid reorganisation
Leonteq is pushing its platform development road map which includes a number of cooperation agreements with other issuers of structured products. The Swiss provider has marketed the first products under a cooperation partnership with Aargauische Kantonalbank, which will act as guarantor, offering its Standard & Poor’s AA+ credit rating, while Leonteq will handle the structuring side through its technology platform, and also manage the products, covering the entire value-added chain: structuring, documentation, market-making and lifecycle management.
30 January 2017
Contineo rolls out new data service for structured products
Contineo has launched I/O, a suite of data products aimed at adding transparency to the market for equity-linked structured products in the Asia-Pacific region. This is the first time the platform’s data has been collated and analysed to provide subscribers on the network insight into their business and performance, and provide other market participants with insight into this previously opaque market.
22 February 2017
Credit Agricole CIB adopts Orchestrade trading platform, ditches structured products legacy systems
Credit Agricole has partnered with Silicon Valleybased Orchestrade Financial Systems, a capital markets technology platform for cross-asset trading and risk management, in a move to replace its trading and risk legacy systems and overhaul its interest rate derivatives and FX forwards trading operations.
23 February 2017
Fintech company teams up with Luxembourg consultancy to provide Kid service across Europe
Finalyse, the Luxembourg-based specialist valuation, risk and performance solutions and regulatory compliance consultancy, and Fairmat, the Italian provider of derivatives pricing and structured product analysis, have partnered to provide a key information documents packaged retail and insurance-based investment products implementation solution to the structured products market in Europe.
13 April 2017
Vontobel’s digital structured products platform arrives at Ariva and Boerse Frankfurt
Vontobel has scored a coup in Germany with the launch of the Swiss bank’s multi-issuer meinzertifikat.de structured products platform on popular German investment portals boersefrankfurt.de and ariva.de on April 6. Mein-zertifikat. de was launched in Germany at the end of August 2016, and is one of the first fintech solutions that allows advisers, asset managers and investors to create, order and then invest in individual structured products in real time. There are only two issuers on the platform, currently, with HSBC Trinkaus & Burkhardt joining last November.
17 May 2017
Vontobel’s Deritrade adds Mifid 2-compliant advisory and portfolio management tool
Vontobel has created ImpaQt, a new advisory software developed by Swissquants that will allow fully integrated checks of the risk profiles of structured investment products to be carried out in a portfolio context by investment advisors prior to issuance on the bank’s Deritrade multiissuer platform. The link between Deritrade MIP and ImpaQt means that investment advisors will, for the first time, be able to carry out pre-trade checks of the risk profiles of the product concepts they develop - and to do so in the context of the individual client portfolio, according to Roger Studer, head of Vontobel.
28 June 2017
BBVA partners with Bloomberg in latest structured products automation push
BBVA has partnered with Bloomberg to enable its institutional clients to build bespoke structured products and calculate pricing in real-time in a fully automated fashion via Bloomberg’s Derivatives Library (DLIB), which makes part of Bloomberg Professional service. BBVA’s institutional clients will be able to execute deals based on tradeable prices delivered to BBVA’s dealer page on the Bloomberg Terminal. In addition to delivering structured products pricing in real-time, DLIB provides tools for the derivatives workflow, from idea generation and market-data analysis to structuring and pricing of new products, using standard templates or advanced scripting capabilities which are supported by Lexifi’s financial contract description language, MLFI. The new solution will provide both parties of
a deal with clarity into such deal’s characteristics and gives BBVA’s buyside customers back-testing capabilities and product life-cycle management.
9 October 2017
Numerix moves to capitalise on increased demand for complex structured products
Numerix has moved to integrate its analytics platform into Oneview Asset Management, its real-time portfolio and risk management solution for asset managers. The technique was developed ‘from the ground up’ for asset managers to support multi-asset class portfolios, and the incorporation of complex structured products within the solution adds further capabilities to the company’s real-time trading and risk platform which is aimed at providing a single source of data and analytics for front and middle office risk. Oneview is available via Numerix’s real-time SAAS platform, enabling users to leverage Numerix’s asset management software, pricing models and institutional infrastructure.
17 November 2017
Societe Generale to rollout SG Markets platform in Apac
Societe Generale is gearing up to launch SG Markets Structured Products in the Asia-Pacific region following a “very positive” year for the electronic trading platform serving structured products desks, distributors, private banks and wealth managers in Europe. SG Markets can be accessed in different languages (English, French, German and Japanese) and includes research, trading, document generation, commodities offering, pricing and valuation, and lifecycle management, as well as an OTC functionality and a secondary market capability. The platform provides access to an underlying universe of around 1,500 assets and a diverse set of payoff profiles, including participation, call and put spreads, outperformance, bonus certificates and credit-linked notes.
22 November 2017
TPT launches multi dealer platform in the US
Transparitrade (TPT) has launched a multi-dealer trading platform for the US structured products market. The new platform provides comprehensive educational tools that are a must-have for those that serve US retail investors, the platform boasts around 100 written tutorials covering general investment and, specifically, structured notes, exchange-traded
notes and structured certificates of deposit. The company completed a roadshow of US brokerdealers last year, gaining registrations from Advisors Asset Management, Ameriprise, Incapital, LPL and Raymond James. Issuers will pay a fee on the basis of the volume traded that is above the amount traded in the previous year, a feature that has been introduced to ensure that the fees are not paid on cannibalising existing, non-platform business, according to Alan Angell (pictured), chief operating officer at TPT, a spin-off from Wallstreetdocs.
19 December 2017
Contineo adds Six to consortium in post-trade service deal
Swiss exchange Six has joined the consortium behind messaging network and data provider for structured products Contineo as a strategic partner and investor. Contineo will integrate Six’s Connexor listing functionality and infrastructure for product data, to provide additional functionality to existing clients of the platform and ‘better serve their relationship managers and adhere to regulatory requirements’. As a strategic investor, the Swiss exchange joined the platform’s other shareholders including AG Delta, Barclays, BNP Paribas, Goldman Sachs, JP Morgan, HSBC and Societe Generale. Six’s Connexor offers market participants a series of services throughout a financial instrument’s entire life-cycle and supports the fulfilment of regulatory obligations such as Mifid 2 or IRS 871(m). The central, standardized capture and maintenance of product data simplifies workflows and reduces the number of interfaces.
UBS was a pioneer in the single issuer platform segment with its UBS Equity Investor (EQI) platform, which was rolled out in 2002 to serve adviser clients in the Swiss market. The platform is an electronic interface that allows private banks, securities companies and wealth managers to select preferences for a structured product by choosing risk parameters - such as barriers, strikes and maturity - and get a price.
The platform is a ‘one-stop shop’ and completely automated for information gathering, decisionmaking, execution and monitoring purposes.
Having issued over US$66bn in notes globally in the US, Asia and multiple markets in Europe since inception, the platform is one of the largest for automated structured notes in the market. “We have a robust process that has been tested globally for over 10 years,” said Michael Nelskyla, head of investor solutions, Americas at UBS. “As the largest wealth manager globally, our platform has evolved with usage and feedback from some of the most sophisticated distribution channels of structured notes in each region.”
In 2016, UBS traded almost $6.7bn across approximately 50,000 trades though the platform, and, up to November 2017, the bank traded over $8.5bn across more than 51,000 trades, according to Andrea Ward, project manager at UBS Investment Banking, Europe.
Speed of execution to capture market opportunity, access to aggressive pricing on a large range of global underlyings and the ability to trade low notional tickets are some of the most valued features for users of click-and-trade platforms, but the differentiating factor lies in the functionalities offered, according to Shruti Senapati, director, equity derivatives structuring at UBS. “The robust nature of EQI’s processes is demonstrated by the
significant volume of trades that have gone through the platform,” said Senapati. “In the US, we have differentiated ourselves by being the only platform that can offer straight-through processing, with automated term sheet generation for notionals as low $100,000, allowing financial advisors to customise notes for the benefit of ever smaller investors.”
UBS’ single-dealer platform offers a ‘display window to the catalogue of equity tailor-made structured products offered by UBS in Switzerland’. The platform provides actual, indicative live pricing and allows users to design their own personal product, starting at a minimum investment amount of CHF20,000. Investors can define their preferences by selecting risk parameters such as barrier, strike and tenor or maturity. Client advisors can issue products online using the equity investor tool, which including the immediate generation of multi-language term sheets in English, German, French and Italian.
The platform offers price transparency, the opportunity to issue s structured product anytime during market hours and a wide range of underlyings and maturities to match investor market expectations and requirements. Products can be issued on demand ‘in a matter of minutes or even seconds’. The platform has been in the market for over 10 years and has issued over 200,000 individual products.
It covers the most popular product types offered in Switzerland:
Goal (reverse convertible - 1220)
Kick-in goal (barrier reverse convertible - 1230)
Worst-of kick-in goal (worst-of barrier reverse convertible - 1230)
Bloc (discount certificate - 1200)
Bloc + (barrier discount certificate - 1210)
Perles Plus (bonus certificate - 1320)
Number of trades through Smart Derivatives in 2017: 65.000, split evenly between primary and secondary trades.
Around 1.4 million quotes generated through the platform, of which 25% were triggered by clients.
In 2012, Smart Derivatives was launched in Europe, Canada’s offshore market, and was also rolled out in Asia with some specific features to comply with local regulatory requirements. The platform is now live in Belgium, France, Luxembourg, Switzerland and the UK, with plans to launch in the US. Smart Derivatives is an online equity derivatives trading application.
The platform, designed to be a ‘one-stop shop’, combines connectivity to the bank’s investment strategies, primary and secondary trading products and post-trade services, and is fully-integrated for equity derivative investors. It includes a wide range of payoff types and over 2,000 underlyings. The platform was rolled out into the US in 2013.
The volume of transactions going through singleand multi-issuer platforms (against voice) is growing constantly, but through a process which is not yet fully electronic, according to Geoffrey Rodrigue, global head of business transformation equity derivatives at BNP Paribas. “If you take into account the requests for quotes from clients on Smart Derivatives, for instance, you would conclude that there is a very significant usage by our clients,” said Rodrigue. “However, this is to do with price discovery, as, what we see is that, once that price has been found, clients usually either phone or email us to execute the transaction. This means that the clients still need a direct interaction with sales to finalise the processing of the transactions, at least with single-dealer platforms.”
For secondary market transactions, however, singleissuer platforms seem to be more relevant for pure electronic transactions, as the volume represents a vast majority of the bank’s secondary trades in structured products when those products are not listed on the exchange. “Clients are intensively leveraging the single-dealer platform’s lifecycle management tools to see the value of a particular product at a specific time, to monitor the product being close to maturity, or when a barrier is about to be breached,” said Rodrigue. “There are a high number of functions around portfolio management of structured products that are very well covered by Smart Derivatives.”
Multi-dealer platforms will have a role to play for standardised products, but will not replicate the offering in advanced services provided by single-issuer platforms, according to Rodrigue. “Our unique selling point is the fact that we are a real cross-asset platform,” said Rodrigue. “We have recently integrated credit-linked note pricing capabilities and rate-related structured products will also come pretty soon. It comes on top of the existing equity and commodity underlying instruments already available and is combined with a capacity to design and implement any payoff type for our clients in only one or two days.”
The flexibility of the platform has enabled the bank to add new functionalities and tools in response to client demand to improve pre-trade (basket optimisers) and post-trade services around structured products. “Smart Derivatives was not only developed to meet the needs of the buyside, but also to streamline the sales process within BNP Paribas, since sales also use Smart Derivatives in their day-to-day,” said Rodrigue. “The fact that both sales and clients are using the same platform is really streamlining the cooperation and communication on structured products regarding the structuring process and the transactions as such.”
From a technical perspective, the bank continues to add “advanced tools” that address the changing needs of both sales and clients. “This is no longer a pricing tool, but a series of advanced tools (structuring, secondary market trading) that can help product distributors to navigate the different alternatives available for their clients and take care of the aftersales process,” said Rodrigue. “However, from a provider’s standpoint, we have developed many other tools that are also relevant and will be more important to comply with the new regulatory framework. We also want to focus on giving clients the tools they need to automate their booking process and manage more efficiently the product lifecycle of their structured products, because it will simplify their work and improve their efficiency.”
Those platforms that can offer a comprehensive hub to distributors will be winners, but this is something not all single-issuer platforms can offer. “Clients can see what platforms offer a more comprehensive service and which ones continue to invest and add solutions to their offering,” said Rodrigue. “Multiissuer platforms have a role to play around price discovery and best execution, but only for the most standardised products, although they will not be able to offer complex payoffs as well as the level of service that a single-dealer platform can provide.”
The multi-issuer platform market remains fragmented and no one platform will become the market leader, according to Rodrigue. “Our focus will still be on Smart Derivatives, as there is scope to grow our business by offering a bespoke access to product structuring and a set of digital tools that can help streamline processes in their day-to-day work around structured products,” said Rodrigue. “The single-issuer platform segment will not be crowded as most of the offering from tier one platforms will be difficult to replicate. We see tier 2 issuers using multi-issuer platforms to be able to match the product offering of tier 1 banks.”
The French bank launched its Alpha platform in 2010 to connect clients directly to its trading floors, providing a direct and proprietary access to its range of electronic offering. Alpha offers pricing for FX spot, swaps, forwards and non-deliverable forwards; precious metals spot, swaps and forwards; money market deposits; equity indices; primary issuance and secondary market for structured products; and base metals outrights and carries.
The platform has a web user interface, and also offers an application program interface (API), and enables clients to trade a range of multiasset products on a single electronic platform that is fully automated from pricing to booking and issuance. Alpha provides a single electronic entry point to the markets and has an optimised price discovery function, allowing users to execute unlimited price requests and fine-tune each product parameter, as well as post-trade services, including dedicated lifecycle management, export functionalities for term sheets and a legal documentation generator.
In 2015, Societe Generale added an OTC functionality for distributors, private banks and wealth managers. The platform provides a single electronic entry point to the markets and has an optimised price discovery function, allowing users to execute unlimited price requests and fine-tune each product parameter, as well as post-trade services, including dedicated lifecycle management, export functionalities for term sheets and a legal documentation generator.
In May 2016, the bank launched SG Markets Structured Products, which replaced Alpha,
migrating its clients to a new umbrella platform for structured products desks, distributors, private banks and wealth managers. The interface was revamped with new HTML 5.0, a “future-proof, platform-agnostic technology” supported by the different types of devices (smart phones, tablets, PCs), to “recognise the fact that the world is going global, and uses different devices”.
People use single-issuer platforms for many things, one of which is to get a sense of the market, and to access pricing quickly, however, the likelihood of a private bank using a single-issuer platform to price a single product to trade it with that single issuer without having a sense of where the market is, “is just unrealistic”, according to David Wood, head of electronic business equity, derivatives and cross asset at SG.
“The quality of service is as important as pricing, if not more,” said Wood. “Being able to build the product the end client wants. In private banks, which have dedicated desks providing advice to their own relationship managers, the role is to make sure they get the best possible price from the market and they will use a single-issuer platform, but would definitely look at multiissuer platforms once those platforms can deliver that. At the moment, is perfectly OK to use both channels for price discovery and so on, and you see a number of competitors active in both singleand multi-issuer platforms.”
There are technology companies and even exchanges making inroads into platforms, despite cries of conflicts of interest, according to Wood. “There is room for any set up as long as there is customer demand, technical capabilities, market knowledge,” said Wood. “This is difficult to apply across Europe, for instance, because it is not a single, but a combination of markets. There are very few players in Europe, with the exception of a handful of banks that have a pan-European knowledge and experience to be able to offer a platform service across the continent.”
Hence, a number of players are approaching the market in different ways, which has resulted in fragmentation, but “for good reasons, as Portuguese investors have different needs to Norwegian investors, because of a number of considerations, such as different tax regimes. Despite this fragmentation, there are opportunities for platforms to be able to normalise that”.
The choice of single- or multi-dealer platforms depends on what the client is looking to solve,
according to Wood. “If they are looking to solve a procedural issue, such as recording the workflow, there are platforms to do that, but, if you need to do full front-to-back automation with live pricing, that’s where single issuer platforms in Europe have a much stronger lead, although this will change over time for the most standardised products,” said Wood.
SG Markets continues to get traction and make progress on the back of “very good relationships with dedicated private banks” and also in the RIA (registered investment adviser) channel that work with more bespoke type of products for advisers and particular portfolios, according to Wood. “Our platform fits very well with that approach but we don’t think SG Markets will ever be a platform for the broker dealer channel,” said Wood. “The US market is also vast and the cost of distribution can go through the roof and that’s where the catalyst for the automating processes is and the opportunities for disruptors are. However, building the technology will not solve all the challenges and can be very expensive.”
SG launched the platform to cover primary issuance but it became obvious that secondary would follow later, according to Wood. “We are still on a growth phase and adding new capabilities and functionalities to address issues around settling with custody banks in markets such as Switzerland,” said Wood. “We are also adding features for the Nordics where 95% of the secondary trading we do there is done through SG Markets and with the clients directly. This set up would not work in every market but it clearly does in the Nordics and is helping us on our educational efforts as well. Once people understand the value of the tool they use it more proactively and demand new features. There is no value for anyone to provide a quote for a 50k unwind on a particular asset. The price isn’t going to change, there’s no upsale opportunity.”
In 2006, Barclays launched its Barx IS/Comet platform to provide access to pricing, structuring tools and issuance in Germany and Switzerland. The platform was expanded to the US in 2012, but only as a pricing tool due to regulatory restrictions. The main goal was to provide secondary market transparency for the bank’s equity-linked structured products. Once the objective was
achieved, the platform moved from secondary market placement to secondary market liquidity. At a later stage, the UK bank extended the range of products available in the platform, the jurisdiction and the underlying exposure across asset classes including equity, commodities, interest rates, credit, foreign exchange and other hybrid instruments.
In January 2010, Barclays Capital launched B markets in Germany and Switzerland, a high-volume global issuance platform aimed at active traders of leveraged products. These platforms offered investors the full spectrum of markets, asset classes and investment strategies replicable through certificates in a high-speed trading environment with short execution times and tight spreads.
At the end of 2015, the bank halted the use of Bmarkets in Europe as part of a strategic review announced by Antony Jenkins, the then chief executive which designated the business as non-core. Bmarkets operated in four European countries: France, Italy, Germany and Switzerland.
Barx Investor Solutions (Barx IS) has a multi-asset class scope and covers equities, commodities, foreign exchange, inflation, interest rates and hybrids.
Bookbuild new issues.
Access daily secondary market liquidity across multiple asset classes.
Create bespoke structured investments online.
Stay informed with updates on barrier events and corporate actions.
Barx Comet is a global platform that provides pricing and execution for equities, foreign exchange and interest rate derivatives.
Available on the Barx IS platform, Barx Comet allows the efficient tailoring of bespoke products across a wide range of global underlyings.
Main features: Customisation, real-time execution, integrated offering, bookbuilding, secondary market trading, just like any other liquid asset, lifecycle management, global coverage.
In September 2012, Hypovereinsbank (HVB) began to offer a special service to private investors. Using the my.onemarkets product configurator, private banking advisers and selected financial advisors in the bank’s branches were intended to help investors design a custom-tailored solution in a matter of minutes for a minimum investment of €10,000. The my.onemarkets platform has established itself since 2013, when it was integrated into Unicredit’s German retail network and, as of 2014, into its Eastern European banking network.
The platform operates within a financial advisory set-up in a private banking and retail network, according to Kai Heinecke, director of sales, private investor products at Unicredit.
The onemarkets platform is a product management platform that supports the entire product life cycle for structured products, according to Heinecke. “Unlike other typical structured products platforms, which are pricing and booking tools for product managers, my.onemarkets was designed to be used during the advisory process in our client network as well as the private bank,” said Heinecke. “For my.onemarkets to be integrated into the advisory process, Unicredit cooperated closely with the bank’s investment committee, as we needed to understand the different client and risk classification, so that, after profiling a client, my.onemarkets would only provide suitable investment solutions that advisors can provide to their clients.”
My.onemarkets acts as a sort of robo advisor as it offers “suitable tailor-made structured products from €10,000 on”, according to Heinecke. “The platform also provides full documentation, as well as helping to create investment protocols or showing product explanations via videos or brochures,” said Heinecke. “Additionally, our sales force provide training sessions explaining the functionalities of the my.onemarkets platform.”
For self-directed investors and direct banks, Unicredit offers my.one direct, a tool that can be white-labelled and integrated into the infrastructure of online banks, enabling self-directed investors to create leverage knockout products such as turbo classic, turbo open end and mini futures tailored to individual risk profiles and appetite, instead of having to search the market for a particular product. “This allows the client to build a product for the respective bull or bear market scenarios,”
said Heinecke. “Price, leverage or barrier level can be set individually by the self-directed investor. In Germany, the product is created within two minutes and can be traded right away, while also being listed at a German exchange.”
Different markets and regions require distinctive offerings and set-ups, and, even within these markets, there are various business models and regulatory requirements, according to Heinecke. “One has to consider what type of client is targeted, ie. selfdirected investors, private banks, subscription business, medium-sized independent asset managers,” said Heinecke. “For each of these markets and clients, a particular platform model exists. Nevertheless, we see that the only way to continue within the structured products business is by making the entire process more efficient, be it from a cost perspective or in terms of regulatory compliance.”
Multi-issuer platforms have the potential to become the standard business model, according to Heinecke. “The key differentiating factor for multiissuer platforms will be to find the right partners to team up with, be it issuers or distributors,” said Heinecke. Costs and regulatory pressures “are expected to continue and will send even more flow via platforms”, he said.
Investors can choose from a range of products, including: reverse convertibles (classic, protect, express protect); express certificates (classic, plus); bonus certificates (classic, cap); reverse bonus cap certificates; and capital-protected notes (classic, cap).
Around 135 underlyings are available. In addition to the better known indexes, such as the Dax, MDax and Eurostoxx 50, a large number of individual stocks, both blue chips and small- and mid-caps, can also be chosen. Investors can change individual parameters to precisely adjust the risk-reward relationship in order to meet their needs. Issuer risk is always present for bearer notes such as these.
Products are issued at the push of a button and the platform is integrated into the advisory process, so the key investor document (the Produktinformationsblatt, or PIB) and flyer are then automatically generated. The individual International Securities Identification Number can also be used on the onemarkets website to obtain information on the product during its entire life cycle. Although the products are generally not
listed, they can be sold at the daily price on any stock exchange dealing day.
My.onemarkets provides an integrated advisory approach can be used to develop custom-tailored solutions with the client that lead to increased customer satisfaction. Fast automated issuing of the product leaves more time to perform a needs analysis during the meeting with the client. Around 8,800 products, with a volume of approximately €330m, since its launch.
Currently, 40 to 50 transactions with an average investment of €37,500 are being performed per day. Given the market situation, since August 2013 the focus has been on express structures. Blue-chip stocks, such as Daimler and E.on, TUI and Celesio from the MDax, and European stocks Carrefour and Axa have been the most popular underlyings in advisory sessions with my.onemarkets in recent months. My.onemarkets is currently being used in the German HVB network and in other Unicredit banks in Central and Eastern Europe.
(Portal – institutional/buyside)
BBVA partnered with Bloomberg in the summer of 2017 to launch BBVA Portal, a meta-tool to enable institutional clients to build bespoke structured products and calculate pricing in real-time in a fully automated fashion. Platform clients can price autocallables, such as Athena and Phoenix structures, as well as reverse convertible structures in a note and swap format for more than 400 underlying assets.
“This set up covers most of the needs of our private banking clients, but we remain open to new opportunities,” said Emilio Sainz de Baranda, global head of equity derivatives sales at BBVA.
As part of the bank’s digitalisation strategy, BBVA decided about two years ago to position itself as an agile organisation that captures business from private banking, according to Sainz de Baranda. “To achieve this we had two choices: build our own electronic platform or partner with an existing platform. We decided to go with a functioning platform. Another single dealer platform would have just been ‘another one’ and we wanted to do something new and different.”
The platform allows clients to execute deals based on tradeable prices delivered by BBVA’s engines on the Bloomberg Terminal. In addition, the DLIB platform provides tools for the derivatives workflow, from idea generation and market-data analysis to back-testing and product lifecycle.
“The genuine interest in the industry to facilitate access to pricing and the increasing regulation, will drive this platform landscape to consolidation in one or two multi-issuer platforms,” said Sainz de Baranda.
The biggest change platforms are bringing to the market is the speed with which investors and private banks can transact products which is a big improvement from the old set up. “In the past, responding to a pricing query would take around one day and then about an hour or more to trade,” said Sainz de Baranda. “With the new set up clients would get the pricing in real time. Additionally, the platform offers flexibility when submitting a request.”
“The natural evolution of this framework is to eventually have a multi-issuer platform set up,” said Sainz de Baranda. “The market up until now has been about connectivity and price discovery but developments are happening fast in the market.”
The platform offers execution capabilities as each price provided can be executed within a threeminute window. “Once a client has submitted the parameters of the trade the system will provide a code with which the trade can be executed,” said Sainz de Baranda.
Although no panacea because automating execution requires a more complex technical approach, as there a number of Mifid 2 provision to abide with, the bank has addressed the issue by generating a code that clients can use to call the bank, and confirm the trade.
Sainz de Baranda believes that at this stage there is a combination of automation and manual processes as “clients are using platforms to find out the price and then they place the order via reverse enquiry”. “We consider those platform transactions,” said Sainz de Baranda. “Bottom line is that the number of products done via the platform has increased significantly. We have increased our activity in this segment of the business by more than 300% and that gives you an idea of how powerful the connectivity via Bloomberg has been for us. The fact that the process is now almost fully automated does not mean that we can reduce our work force because that increase in activity requires the human element to manage it.”
Sainz de Baranda also believes that platforms have limits on ticket size - single tickets on the BBVA/ Bloomberg platform can be of up to €3m, and some of them offer up to €10m, but the volumes will increase as platforms accommodate higher size tickets. “The growing number of transactions is indicative of the traction platforms are getting,” said Sainz de Baranda. “The feedback we get from clients is that the experience is completely different because they can play with different variables before requesting a quote, and that is also putting the tools in the hands of investors for them to take ownership of the investment process.”
“The move towards automation is helping to educate the market and that can only be positive,” said Sainz de Baranda. “This market will be dominated by multi-issuer platforms in the future although there is still some way to get there. These will have to be fully integrated with issuing banks so that clients will be able to use them for product design, execution, post-trade, and secondary market. The challenge is for multi-issuer platforms to replicate the level of service provided by single issuer platforms (price from five banks, simulation and optimisation).”
Being able to execute trades will also be a differentiating factor as not all single issuer platforms allow execution, “and you want to have a generic Kid provided by the platform from each product you trade not a different Kid for each product you price with a different issuer”.
“The multi-issuer set-up, however, will only work if the hub is provided by non-issuing third party,” said Sainz de Baranda. Bloomberg has “a captive clientele around a number of common areas for investment banks and that makes connectivity and integration easier,” according to Sainz de Baranda. “The reason for single issuer platforms opening to other issuers is because is the only way to achieve best execution,” he said.
Equity derivatives structured products execution platform for institutional clients:
Speed: 45 seconds to obtain a price
Autonomy: Clients drive product design, choosing from 330 + underlyings and making it possible to use hundreds of combinations when building a customised product.
Execution: prices are firm and in real time
Access/multi-channelling: clients can use the Bloomberg terminal, smartphone, tablet or laptop.
Functionality: Clients can price and close any kind of autocallable and reverse convertible structures via Bloomberg in a completely automated process including different parameters such as coupons, barrier levels, triggers, and funding parameters, insert desired return in both absolute and relative terms, back-testing.
Technical specifications: Autocallables, versus/ Phoenix, reverse convertibles and worst-of puts; BBVA notes, options or swaps; euros, US dollars, UK sterling, Swiss francs or Swedish krona; maturities up to six years; forward strike up to 70 days; 330 underlyings including global indices, 200 US underlyings, including 25 ETFs, eight ADRs and main S&P 500 stocks; main European stocks including 15 Swiss stocks.
Mysolutions/Spirit Asia (retail/buyside)
The Swiss bank offers automated front-to-back trading flows with a central compliance rule engine based on two in-house systems (Mysolutions and Spirit Asia). Credit Suisse launched Spirit in 2009 an online tool for tailored certificates, which was later renamed to Mysolutions to be rolled out in Europe, as well as to Asia and US. The portal enables the design, price, and trade of structured products and hedging strategies, and offers a choice of more than 550 underlyings among equities, indices, foreign exchange and commodities.
Mysolutions also offers real-time pricing and execution capabilities. Starting from a minimum investment amount of CHF20,000, clients can price different structures and trade a product of their choice. Indicative and final documentation in various languages is available and can be downloaded with a single click.
Mysolutions also provides a ‘Price Heatmap’ and a ‘Lifecycle management’ tool to track transactions, and it also allows filtering by coupon, underlying, tenor, barriers, currency pairs and sectors with
a colour-coded coupon landscape to navigate the pricing and execution platform. In addition to indicative and tradable real-time pricing, the platform offers pre-trade marketing and legal documentation available in several languages.
Equity Structured Products - Barrier reverse convertibles (BRC); callable BRC; autocallable BRC; discount certificate; pronote with participation; reverse convertible; callable reverse convertible; and bonus certificates.
FX Standard Products - FX spot/outright; FX swap; FX multi-outright; FX limit order.
Hedging strategies - Leveraged forward, knock-into (leveraged) forward, (leveraged) risk reversal, FX OTC vanilla options.
Outperformance strategies - Securitised: Finer S, OTC: DCD/Finer revexus, KI/KO/Kiko revexus, ratio knockout forward.
Commodities - Precious metals (PM) standard products (PM spot, PM outright, PM swap, PM limit order); commodities structured products (securitised: BRC, Finer S, PM outright, OTC: DCD/ Finer revexus, KI/KO/Kiko revexus)
Equities - Starting from CHF20,000 or equivalent
FX standard products - FX spot, outright, swap: no minimum; limit order starting from CHF100,000 or equivalent
Hedging and outperformance strategies - Starting from CHF25,000 for DCD/Finer; plain vanilla options starting from CHF100,000; other products starting from CHF250,000 or equivalent
PM standard Products - Precious metals spot, outright, swap: no minimum; limit order starting from CHF100,000 or equivalent
Commodities structured products - Starting from CHF25,000 or equivalent
More than 500 equity underlyings; more than 200 currency pairs; precious metals; base metals; oil.
Cross asset (switch between product types; standardised user interface for all products)
Underlying (Compare single- or multi-underlying strategy; comprehensive search function across the underlying universe)
Live pricing (Calculate and compare product offerings and underlyings real-time; solve for coupon, strike or barrier; obtain three different pricings with a single click; indicative pricing available outside of trading hours)
Lifecycle management (comprehensive deal blotter; trades overview; expiry and lifecycle management)
Client details (Straight-through processing to relevant client or custody account; multi-client booking - block trade)
Click to trade (Price-validity countdown; execute a trade within seconds; executed deals immediately visible in deal blotter)
Further functionalities (Marketing and legal documentation available pre- and post-trade in up to seven languages; save or share your pricing; preview of all relevant dates; Credit Suisse Plus - Advanced client portal for research, analytics, trading and reporting)
Autobahn (retail/buyside)
Autobahn was launched in 2008 in Europe and in the US only as a pricing tool and is an electronic service offering access to Deutsche Bank research, commentary and analytics; electronic execution and liquidity across multiple asset classes and markets; as well as transaction banking and post-trade services. The platform was designed as a central access point to Deutsche solutions following an app-based operating model.
Autobahn
Autobahn offers:
Deutsche Bank research, commentary and analytics
Electronic execution and liquidity across multiple asset classes and markets
Advanced transaction banking and post-trade services
App Market
The Autobahn App Market provides a central access point to bankwide solutions following an app-based operating model. Single-sign on, one stop shop to access electronic products and information with a single point of access to more than 180 electronic. Eiminates the need for multiple systems and logins and uses an integrated search engine to locate key information within seconds. Clients can browse and arrange their favourite apps, creating a personalised apps library of the services relevant to their role and work remit.
Products
Credit - Deutsche provides trading access to Index CDS products.
Equity - Access to electronic equity trading solutions and algorithms.
Fixed income
Foreign Exchange
Tradefinder - Offers clients, traders and sales people a wide range of cross market functionality ranging from time series analysis, relative value scans, asset liability management, portfolio analyses and optimisation to trade execution and clearing tools.
Launched in 2007, the platform is designed to meet the needs of investors globally. The bank also offers access to its Fundlogic hub, a separate multi-asset platform that is focused on delivering Ucits and non-Ucits fund based solutions globally.
In addition, the bank entered into a partnership with
Flatex, a subsidiary of German Fintech Group, with the US bank receiving preferred partner status for exchange-traded products on the online broker’s open platform. Morgan Stanley’s offering on the Flatex platform includes 13,992 structured products, including leveraged and factor certificates, as well as warrants on a wide range of single share underlyings.
Trading structured products electronically since 2008, the Toolbox enables relationship managers to simulate, price and trade a broad array of flow products in realtime, based on specific client needs, including equities and FX as underlyings. Already in use with selected institutional clients in Switzerland, it was expanded to external asset managers in the country in 2015.
A platform for trading structured products, securities and foreign exchange and precious metals.
Key features - Flexibility in currency exchange and precious metal trading; free access; individual configuration of the trading mask as well as cash and date overviews; limit orders are monitored day and night by the bank; binding confirmations are made immediately and give you a basis for calculation; available in German, English and French
Scope – Cash, futures and swaps (even and uneven); multi-forwards; parallel price view of different volumes; precious metals in grams/ounces (gold, silver, platinum and palladium); gold and silver: Loco London or Loco Zurich selectable; limit order (take profit, stop loss, OCO, if done, loop order, call level); business confirmations by email and SMS possible; position display after value date; various personalisation options of the application; available in German, English and French.
Requirements - Investors need a bank account with Zürcher Kantonalbank and accounts in the respective currencies or precious metals; an eTrading Pro contract; internet access; and a security token.
Deritrade – retail /buyside (advisors, wealth managers, private banks)
Vontobel launched Deritrade, its single issuer platform, in 2005 in Switzerland, which became a multi-issuer platform in 2012. The bank was able to eliminate competition from other independent multi-issuer platform providers, such as Structuringlab or Xicor, both of which no longer participate in the market. Additionally, Vontobel acquired another Swiss independent multi-issuer platform in 2014.
There are seven issuers on the platform: Deutsche Bank, JP Morgan, Morgan Stanley, Societe Generale, UBS, Vontobel and Zürcher Kantonalbank (ZKB), with around 30 intermediaries and 300 advisers using the service. The cost of a product decreased to CHF10 from CHF3,0004,000 a decade ago.
In 2014, Deritrade was launched in Singapore with distributor partners LGT-Group, Union Bancaire Privee, and brokers KGI Securities, Maybank and UBS.
The platform is one of the few providers with a completely automated platform where certificates are listed on the Frankfurter and the Stuttgart stock exchange. It is only available to advisers, asset managers and private banks, and generates quotes from issuers for the same bespoke product for a minimum of CHF50,000.
“We have had a couple of very good years with the Deritrade multi-dealer platform growing the number of transactions and volume, and adding new tools and functionalities,” said Eric Wasescha, head of platform solutions at Vontobel. “Platforms are increasing the market share on the distribution side, which is a sign that the whole market is moving towards automation.”
There are two types of business models, one led by the single issuer platforms targeting the execution desks of this world, which the Swiss bank also covers, and the other one led by multi-issuer platforms aimed at investment advisory desks of wealth managers, and relationship managers, according to Wasescha. “Our aim is to provide an ‘insanely great user
experience’ for relationship managers and financial advisors at the point of sale,” said Wasescha. “If you go through the execution or advisory desk route, you’re just another single- or multi-issuer platforms and is very difficult to differentiate yourself. By empowering relationship managers, we get closer to addressing the investment needs of end clients.”
Structured products can add value due to their flexibility and the fact they can be customised and tailored to meet different needs and risk profiles, and no one knows these needs better than the relationship manager, according to Wasescha. “Additionally, relationship managers go to execution desks that are connected to different single- and multi-issuer platforms to get pricing for their products but the ticket size usually does not match their needs (US$1m +).”
Deritrade’s added value for relationship managers is that the minimum ticket size is US$100K, which allows relationship managers to create bespoke products for each of their clients as opposed to creating a product that will then end up in different investment portfolios, according to Wasescha.
“Deritrade’s minimum ticket size is US$20K and this flexibility is very welcomed by relation managers serving retail clients,” said Wasescha. The platform has solved the challenges around price discovery, but also best execution, “as we have now six issuer banks providing pricing on the platform in Switzerland (two in Europe and a potential third this year)”, according to Wasescha.
“The focus is on creating a user experience for investing in structured products and putting user friendly tools in the hands of investors,” said Wasescha. “Platforms are only starting now to make progress and have an impact on the market, and this will not stop. Most of the platforms and tools are complicated and we need to simplify them to make them more accessible and promote usage.”
Platforms will go beyond the automation around issuance and execution, as they have the capacity to access the custody account of end clients and Vontobel is already working on solutions to achieve that “but you need the willingness of the buyside to integrate our API”, according to Wasescha.
Since the launch of its multi-dealer platform in 2014, when the volume transacted reached CFH600m, trading activity has continued to increase. “In 2015, we transacted over CFH2.2bn of issuance volume, and we had CFH3.5bn in 2016. Last year, the figure continued to grow - we will disclose the figure in January,” said Wasescha.
“These are significant volumes and testimony that platforms are no longer a marginal way to transact structured products.”
Despite the traction around multi-issuer platforms, most investment banks are retaining their singleissuer offerings targeted at execution and advisory desks. “Single-issuer platforms are more suited to professional investors and this will continue to be the case,” said Wasescha. “Platforms are expanding and we expect more developments and even new platforms before there is some sort of consolidation. Most issuers are developing some sort of internal pricing platforms and that involves a shift in philosophy from the reverse enquiry set-up. The two models can co-exist, but there concerns that some issuers can cannibalise the volumes of their own single-issuer platforms by going to multi-issuer platforms.”
Wasescha expects strong growth and new developments that will drastically improve the way advisors interact with product manufacturers and their clients. “There’s still room for improvement and to make these tools even more friendly and accessible,” said Wasescha.
EQ Connect – retail /buyside (advisors, wealth managers, private banks)
Number of issuers connected: US (four), Swiss (four), French (three), UK (two), German (two), Canadian (one), Singapore (one).
Clients: Singapore (21), Hong Kong (19), Malaysian (eight), Polish (five), Taiwan (five), China (five), Thailand (one), Czech Republic (two), Japanese (two), Australian (one), UK (two), UAE (two).
Notional transacted in 2017: Undisclosed
FinIQ EQ Connect multi-issuer platform, delivered in association with Thomson Reuters, was launched in 2014. The platform is dealer neutral, and designed for private banking and wealth management and offers securities as well as complex OTC derivatives. The service is available in Hong Kong and Singapore with future plans for further expansion and has market information embedded, to have the potential to be transformed into a sales tool in the future.
The company has been working since 2001 with over 40 banking groups in retail structured products,
covering all asset classes and has two main offerings catering to two different business needs.
FinIQ System is an on-premise trading, order management, and trade lifecycle management system for retail wealth and private banking for structured, investment, fixed-income and foreign exchange products operated independently from the multi-dealer cloud platforms the company offers. “This FinIQ System makes up for 80% of our business and we have, to date, partnered with 30+ large buyside banks for this offering,” said Milind Kulkarni, managing director and chief executive officer. “This part of our business would fall under the fintech domain.”
FinIQ Market-Connect Platforms offer cloudbased, best-price execution for equity- and FX-linked derivatives, and fixed-income bonds. “Our multidealer set-up for equity derivatives has 15 liquidity providers, while the one for FX derivatives consists of eight marketmakers, with a few more coming onboard in the near future,” said Kulkarni. “Our Market-Connect platforms are browser- based, and cover all the major browsers. We also offer an option for mobile applications for some of these platforms.
The toolkit provides the ability to design and structure products and apply or check variations on-the-fly, according to Kulkarni. “This user configured products (UCP) toolkit gives our clients the flexibility to either design their own products, or to make use of our expertise in configuring these structures.” The toolkit was built with scalability in mind, to let the company’s clients digitise their processes as new requirements and needs arise. “This covers pricing, deal booking, documentation and life cycle workflow for a variety of flow and non-flow based structured products,” said Kulkarni.
Neutrality is paramount, according to Kulkarni. “Integration and change management is also a very key element, as we have seen clients facing problems in plugging their core systems,” said Kulkarni.
“Lastly, the speed of innovation is what matters,” said Kulkarni. “Speed for us is not about launching fancy tweaks or features to our offerings, but is about quickly onboarding any requests and features from clients (underlyings, payoff types, regulatory extracts, documents, notifications). We cannot risk taking months to develop these products like other big firms do, because the added value we offer is actually the ability to deliver complex projects in a timely manner.”
There is a huge fragmentation in the platforms’ market at all levels, according to Kulkarni. “We are in talks
with only seven to eight private banks, which suggests there is immense room to increase that base,” said Kulkarni. “The sector will evolve and consolidate over time. The winners will be those who can offer an independent set-up with very strong technology to accommodate any changes and needs of the clients.
“Platforms will increase their weight in the market and the number of transactions and volumes via these platforms will also increase on the back of regulatory requirements,” said Kulkarni. “Looking from the market perspective, the new generation of investors are also more aware and are more used to technology, so the demand for delivering technology and investment solutions is also increasing.”
FinIQ is seeking to expand beyond Asia Pacific and increase its footprint in other geographical markets, according to Kulkarni. “We see great opportunities in some European markets and we are also in talks with potential clients and partners in other emerging markets,” said Kulkarni.
Retail /buyside (advisors, wealth managers, private banks)
Issuers: 15 issuers
Notional transacted in 2017: Between US$5bn and $10bn
Contineo, a multi-issuer provider platform with Barclays, BNP Paribas, Goldman Sachs, HSBC,
JP Morgan and Societe Generale, went live in Singapore in January 2015 as an issuer-neutral service covering the Asia-Pacific region. The company is backed by a consortium comprising AG Delta, as well as the six investment banks.
The fee structure of the platform is based on an annual uniform licence fee charged to the sell- as well as the buyside. The company is working on network and technology, which, at launch, will allow subscribers to easily access their counterparties through a web-based interface and a set of open application programming interfaces. The company is registering private banks and implementing connectivity to issuers, as well as working with other certified third-party technology companies. Issuers can use the platform for equity-linked and knockout equity-linked notes, accumulators, decumulators, fixed-coupon notes and OTC options.
“The volume transacted continues to go up and we see opportunities to expand the platform and add new functionalities and tools,” said Mark Muñoz, managing director at Contineo.
The company’s next goal is to increase the number of payoffs on the platform (such as bonus enhanced), including new types that are relevant to European investors. “We are also enhancing our relationship manager workflow with 40+ new features specifically designed for RMs,” said Muñoz. “We expect that combination to resonate with clients and will increase the quality of the transactions going through the platform.”
Lifecycle management capabilities will also be a focus in the short term, according to Muñoz. “We have been working very closely with our private banking clients to respond to their needs,” he said. The platform’s lifecycle management facility will include notifications (on the mechanics of the note), corporate actions as well as risk management information. “In addition, we will continue to build up our data sets generated by the network which is something we have been able to monetise. Last year we started delivering buy-side metric reports and this year we have included sellside metric reports. For 2018, we are going to launch market reports.”
The value of a multi-issuer platform is its capacity to simplify the workflow of relationship managers at a time when private banks are embracing automation to reduce costs and streamline their internal sales processes, according to Muñoz. “That is a key development and something that Contineo is promoting across the market,” said Muñoz. “Automation can become a standard and being able
to standardise the language used by the different platforms using Contineo is a significant achievement, which will bring further transparency to the market. The bottom line is that automation creates efficiency, but to get there you need standards, and to create standards you need a neutral party standing in between with a network to do that. “
The power of having multiple-issuer banks and the subscribers that are helping with the implementation of standards are the foundations of Contineo, according to Muñoz. “One of the elements that makes Contineo a serious player in the structured products market is that we’re backed up by some of the main issuers and providers of structured products, and that facilitates access to any market and region,” he said. “The power of the consortium is not in the name of the banks or the number of banks issuing and transacting products, but it’s based on the fact that we have brought together the manufacturers and the distributors to create new standards and protocols.”
Although Contineo pitches itself as a fintech company, its focus is not technology, but rather the critical mass of buy- and sellside companies connected through the network, according to Muñoz. “We are working on a number of initiatives, such as the development of messaging to support Mifid 2 and the inclusion of Six as a partner in the consortium, that will put us in a good position to enter Europe in a very unique way,” said Muñoz. “Private banks are struggling with their structured products business, not only because of new regulatory requirements and guidelines; and we can provide answers and help those firms to navigate the market and comply with upcoming regulations.”
Increasing competition is an indication and testimony of what platforms can do, but Contineo will continue to develop its roadmap. “For us the competitive landscape hasn’t necessarily changed and we continue with our business plan which is to continue expanding the network, its capabilities and our presence in other markets,” said Muñoz, adding that there is still a lot of work to do to tackling the challenges the market is facing through automation ie. term sheet generation or transaction reporting, lifecycle management, etc. “There will always be a function that can be automated and streamlined and we want to be providing solutions to those needs.”
The business model can act as a differentiating factor, according to Muñoz. “We are not a software company, so, for us, it is not about customisation or
adding the latest gadget to the platform,” he said. “We’re a hosted solution, which means that we run our own network and everything is developed inhouse. Our philosophy is to be a hub and to create standards than can then be applied across the industry, including use by other software providers. The focus should not be on the software you provide, but on providing a secure network and the connectivity for firms to transact products.”
Primegate – retail /buyside (advisors, wealth managers, private banks)
Primegate was launched in 2014, with the aim of becoming a multi-issuer platform in Germany and Switzerland. The platform differentiates itself through the trading process, by connecting the client directly with the issuer. All issuers pay the same amount on fees.
In January 2017, Commerzbank launched Wunschzertifikat, a new online platform to offer bespoke structured certificates to retail investors in Germany. The new platform allows investors to design their own products in a few steps and get the product priced in real time on request by Commerzbank and Societe Generale, the only other issuer that has joined the platform. Once the product is issued, investors get an issue code via SMS.
Investors can issue and price five product types (warrants, discount certificates, bonus certificates, capped bonus certificates; and reverse convertibles for private investors) on a platform that offers 27 product types and a suite of around 500 underlyings.
The platform’s technology ensures that issuers are quoting in the same way on the platform, according to Martin Weibeler, senior product manager for Primegate at Commerzbank. The platform has a front end open to the public through the internet. “The main advantage of Primegate is that we do not have a snapshot of a price,” said Weibeler. “We offer streaming quotes to the market through an issuance platform. We issue the products and investors buy them fully independently within your broker, or via Bloomberg, or whatever is their regular channel.
“Once a product is issued, it will appear within a few minutes on the stock exchange, fully tradeable because you immediately get your identifier for the product as well as the final legal documentation, which in Germany requires the final terms and the key investor document.
The platform is also targeted at German asset managers that advise their clients about investment portfolios, according to Weibeler. “They are the ones using the platform, issuing the products and recommending them to their clients which then buy them from the exchange,” said Weibeler. “We are in discussions with several issuers to help them streamline and automate their processes, and do everything on the fly and also with regards to the intraday issue, which is something we will continue to focus on.”
The platform game is no longer about pricing a product, but how to manage the product in your systems and to get the product distributed onto the market efficiently. “Calculating the price for a discount certificate on Daimler takes two minutes on Bloomberg,” said Weibeler. “You don’t need the price itself, because it is quite transparent in this market to price a product. More important is to issue a product and bring it to the market, as well as to advise your clients and make them aware of the regulatory requirements.”
Despite the shift towards automation, this approach works very well for securitised and exchange tradeable, although, for OTC products, there are challenges around harmonising products from all banks, especially booking systems: how is the risk looking; how is the hedging of the delta done,” said Weibeler. In Europe, on the [listed] structured products side, there will be maybe one or two platforms and on the OTC side there will definitely be more, because it is so different with all the trades and all the payoffs.”
Primegate uses common market technology and operates in Java. “We already have clients adapting or building up an adaptor to dot.net or to other platforms, so we are quite flexible because we are using common infrastructure,” said Weibeler. “We are using market technology which is a real IT application and not an application, which is managed on the trading floor at an investment bank. We are totally integrated in the IT department of the bank.”
Halo – retail /buyside (registered independent advisors, wealth managers)
Halo Investing was launched in 2015. The Chicagobased company is the first independent multi-issuer technology platform for structured notes in the US. Through its proprietary platform, Halo Notes,
investors can go beyond traditional structured note calendars by creating and executing virtually any payoff they like, all at a click of a button.
Halo users can choose from a menu of over 6,000 ideas, updated all day / every day, or customize their own strategy for low notional minimums and near-instant execution.
Given Halo’s streamlined technology, the platform can substantially reduce distribution costs, resulting in better pricing for the customer and more coverage for issuers, according to Jason Barsema, co-founder & president at Halo investing. “Until Halo, structured notes were expensive and lacked transparency, liquidity and technology,” said Barsema. “Halo is making the structured note market much more efficient for investors and issuers alike, and seeks to change how the world invests.”
The structured notes market in the US has suffered from a lack of technology around price discovery and connectivity, according to Barsema. “We saw an opportunity to build the first independent multiissuer technology platform in the US for structured notes,” said Barsena. “My background is on the buyside and I have seen first hand that one of the main needs for distributors and advisers is how cumbersome it was to find products. We thought we could add value by automating processes around price discovery and execution.”
Halo’s pricing tools is a major element of the offering, because it enables plugging the platform into multiple issuers, “which can provide pricing in a matter of milliseconds and the platform has the capacity to quote on 100,000 structures”, according to Barsema. “Putting that power at the fingertips of broker dealers and distributors is pivotal to streamline the workflow of those firms,” said Barsema.
“The second element is the pre-trade analytics and portfolio management tools we offer which enables broker dealers to understand the dynamics of the products and see how they may behave within a client’s portfolio and how they may impact the performance of that portfolio,” said Barsema. “This tool is extremely powerful to show clients how structured notes work in the context of a portfolio.”
In addition, Halo offers post-trade analytics to allow advisers to know what corporate bonds they own in the portfolio, how they are performing. “This is also a tool that makes a difference when managing a portfolio of structured notes,” said Barsema. “We also provide corporate debt restructuring liquidity mechanisms for investors to sell and buy on the fly.”
The goal is not automating the manufacturing process, but to provide access to retail investors in an efficient manner to non-linear returns, regardless of the wrapper, according to Biju Kulathakal, co-founder and chief executive officer at Halo. “Structured products are being overlooked as the focus in the US market is on equities, mutual funds and ETFs,” said Kulathakal. “Our platform can act as a catalyst to generate demand around structured products and educate the market about what these products can achieve.”
There are still issues around price discovery, because the primary market in the US still runs on manual processes, which means that, when the market becomes tighter, pricing can be an issue, according to Kulathakal. “Halo is adding significant value by enabling advisers to get indicative levels around a particular trade,” said Kulathakal. “However, our focus is on the gap around pre- and post-trade analytics. We have a five-year roadmap to develop a fully-fledged analytics suite, because analytics drive decision-making. Price transparency has been an issue in the US market and this is also a key element of best execution and accessibility.”
The technology side of things at Halo is complementary to the main mandate, which is to facilitate access to structured products and making investing simpler. “Structured products have a role to play in any investment portfolio and our platform can educate investors and overcome some of the negative press these products have,” said Kulathakal. “There are no bad investment products and most of the problems around structured products are around sales practices. Used in the right way, structured products can add tremendous value to retail investors. Platforms can also help address the misuse of these products, as advisors and investors can understand the risks they are taking.”
Around 85% of the structured notes volumes in the US are driven by high net worth and institutional investors, while the volumes driven by advisors and broker dealers is marginal, according to Barsema. “That’s why Halo can play a role to democratise these products and make them available to those advisers serving retail clients,” said Barsema. “The structured notes market is in its infancy compared to mutual funds, which have been around since the 1970s, but technology will help grow this market exponentially.”
The retail and registered investment adviser (RIA) market is still tiny and has been flat over the last decade, but the scope for growth is significant, and technology can be a facilitator for that growth, according to Kulathakal. “If you think of this market as a zero-sum game, then you could say there’s
fragmentation, but the fact of the matter is that it’s a ‘ridiculously’ small market and competition is good at this stage and we will all benefit from growing the pie,” said Kulathakal. “If you look at the market as a positive sum, we are very well positioned to help grow the market and benefit form that growth.”
Halo sees platforms as an opportunity to move the market to the next stage of development as happened with options or stocks platforms. “At this point, we wish there would be more platforms to increase the connectivity between manufacturers, advisors and end investors,” said Kulathakal. “Platforms can act as a driver for growth and we’re confident this will reflected in the short term.”
Derivatives Library – retail /buyside (registered independent advisors, wealth managers)
In 2014, Bloomberg launched its Derivatives Library DLIB<GO>, a platform to structure, distribute, price and risk manage derivatives, structured products and dynamic strategies. The platform is integrated with BPS data and solutions such as desktop and server API, excel, the multi-asset risk system (MARS) and BVPM — the portfolio functions that belong to the company’s independent valuation services. The platform also offers unlimited coverage from simple, vanilla strategies to the most complex and is used by both sellers and buyers of structured notes, as well as risk managers and treasury groups requiring a tool capable of structuring, pricing and managing risk.
Since then, the company has been active in pricing, releasing new models for derivatives, such as local volatility with local correlation for FX basket products, focusing on providing a simplified scripting language for ‘fast and reliable product creation’. More than a payoff language, it is a contract creation language that is universal across all asset classes, aimed at ensuring 100 percent coverage for derivatives and structured products, as well as generating lifecycle events automatically.
The company has “a pretty robust” proposition as a one-stop shop for front-to-back office workflow solutions, according to Karim Faraj, global head of front-office derivatives products at the technology company. “DLIB is a Bloomberg Terminal function integrated with market data and community and compliance products as well as content from our news, insights, and research,” said Faraj. “It is also
integrated with our order management systems and sales trader workflow.
“Our commitment to developing solutions for structured products investors has also opened up opportunities for Bloomberg to serve as a technology partner to its clients,” said Faraj. “Our terminal, and our premium applications, such as our trade, order and risk management solutions, supports everything from idea generation, to backtesting, trading, valuation, lifecycle and cashflow management, scenarios analysis, stress testing, market risk, counterparty risk, XVA, collateral management, margining (including the latest SIMM calculations) and hedge accounting.”
Additionally, institutional investors that use DLIB to structure and price deals can also use MARS for portfolio valuation and collateral management, as well as front office, market and counterparty risk management. “We work across various client segments and regional markets and so understand a great diversity of client needs as well as regional nuances,” said Faraj. “Where a third-party or in-house solution is needed, we also offer the ability to integrate with in-house or third-party vendor systems.”
“Regulators and investors scrutinise the numbers to a greater extent than ever before,” said Faraj. “The quality of our data is second to none. We not only get data from different parts of the market, but we’re also committed to investing in our data analytics techniques, such as artificial intelligence and machine learning, big data and quant models.”
The company continues to build and enhance tools for the secondary market trading of structured products, such as its OMS application (Toms), to enable investors to unwind a position in structured products, in real-time, and it also allows banks to incorporate their own valuation models, so they can generate price quotes on demand. “DLIB represents a new way to create and price structured products, because it makes the process easier, but not at the expense of flexibility,” said Faraj. “Our scripting capabilities allow unlimited coverage, including complex and hybrid structured products. Scripts can become templates, which users can manipulate and customise by entering desired input parameters.”
It also offers generic lifecycle capabilities and related analytics, such as the probability of hitting a barrier or reaching a maximum gain. Brokers can spend more time advising their clients on the best time to unwind deals and roll investment in new products, according to Faraj. “Those post-sales analytics are built into the Terminal and can be customised to
any metric, such as probability of early redemption before a certain point in time,” said Faraj. “Investors can monitor their portfolios using our valuation and risk solutions and they can do so remotely.”
Price discovery, market connectivity and post-trade operations have historically posed the greatest challenges to market participants and the company has developed new pre- and post-trade workflows, such as its Mifid 2 and collateral management solutions, which were “designed to mitigate these challenges”, according to Faraj. “Risk analytics for structured products is also something many platforms lack today,” said Faraj. “We have been building our risk capabilities to ensure our clients comply with even the most stringent regulations, like FRTB (Fundamental Review of the Trading Book).”
Accounting standards for financial instruments have also changed, with some hedging strategies (including those for structured products) qualifying for hedge accounting treatment, according to Faraj. “As such, we are looking to update our accounting solutions to support these changes,” said Faraj. “Given the non-linear payoff of structured products, accounting and finance teams would need solutions for management reporting, such as P&L forecast and what-if analysis. While this functionality is not available ‘off-the-shelf’ today, the product roadmap calls for the development or incorporation of tools that align corporate accounting workflows with risk management processes, especially for structured products investments.”
One of the things the company does at a product development level is to “go beyond what clients are demanding and try to develop solutions that anticipate future needs to the extent it’s realistic to do so”, according to Faraj. “We operates in some ways like a start-up tech company,” said Faraj.
The desktop terminal, as well as the enterprise applications accessed through it, are delivered as a hosted and managed service. “Bloomberg applications can be integrated with client systems (covering various languages and hardware) in our environment as a hosted service, or onsite,” said Faraj. “We can also have our software running on clients’ appliances. Typically clients will experience an overall cost benefit with our technology, because the data, analytics, maintenance and customer support services are delivered as a comprehensive solution.
“In general, single-issuer platforms will remain a valid proposition around price discovery and connecting investment banks with private banks and wealth managers,” said Faraj. “Single-issuer
platforms bring manufacturers and distributors closer. However, the cost of building and maintaining these platforms is high, which is why we can be a much cheaper alternative to some clients. The sellside can also connect their internal models with DLIB, as was the case recently with BBVA.”
In multi-issuer platforms, the market is fragmented, according to Faraj.
Simon – retail /buyside (registered independent advisors, wealth managers)
Goldman Sachs’ Digital Journey, a Harvard Business School report published in September 2017, the US bank started offering access to its inhouse data, analytics and risk-management tools through a technology platform named Marquee in 2013. The offering allowed clients to integrate highvalue propriety data and applications into their own systems, while retaining the flexibility to make purchases with competing companies, prompting many in the industry to wonder why the bank was giving away its “secret sauce.”
One of the applications on the Marquee platform was the Structured Investment Marketplace and Online Network, known as Simon, which enabled clients to create and buy structured notes online in denominations as low as $1,000. Simon predominantly served smaller clients, including independent and regional brokers and private wealth managers, not its typical institutional client. In 2016, the bank opened Simon to competitors, which gave clients the option to buy securities direct from Goldman Sachs or from a number of additional issuers, including Wells Fargo, CIBC, and TD Bank Group.
Simon makes part of the Marquee suite of applications, Simon was designed to help clients build and purchase structured notes, highly customised risk-return products. Structured notes were popular in Europe, but were limited in the US due to a highly fragmented market of broker-dealers and investment advisers unfamiliar with the product.
Sales of structured investments through the bank’s private wealth channel is about 5% to 10%, according to the study. But, if you go downstream in the broker-dealer channel, the figure is probably 0.25%, not just for Goldman, but for every issuer. Yet the assets under supervision in this channel are on the order of US$6tr.
In 2015, the first year of Simon’s operation, Goldman attracted thousands of advisors from 18 brokerages, representing client assets close to US$2 trillion. Without a retail sales force, Goldman had been unable to reach smaller broker-dealers and non-Goldman investment advisers. By creating Simon, it created the ability for its clients to create, analyse, and buy structured notes electronically, and built a channel through which it could reach an entirely new customer base.
In 2016, the bank opened its platform to competitors, allowing users to buy structured notes not only from Goldman, but also from rivals such as Wells Fargo, CIBC and TD Bank Group.
The two main factors influencing Goldman’s decision to move to a multi-seller platform were reach and variety of offerings, according to the study. Moving to a multi-dealer platform resulted in a large increase in customers and trade value. During 2016, the number of users jumped nearly 500%, from 2,400 to 15,000 users, at 43 brokerages, with the trade value increasing by over 300% from 2015, according to the study.
Oneview Enterprise Platform – retail /buyside (advisors, wealth managers, private banks)
Numerix entered the platform world when joining a partnership initiative in March 2015 with Leonteq, Avaloq and DBS to launch an integrated multi-issuer investment products distribution system (IPDS), with the aim of enhancing the offering and distribution of structured products and with the Asia-Pacific region as its initial prime focus.
The launch of the integrated multi-issuer IPDS (“the Land initiative”) collapsed within a year on the back of conflicts of interest and a lack of “absolute neutrality”. The initiative followed an agreement between Avaloq and Leonteq, in 2014, to further automate the processing of structured investment products between the two companies. The Swiss company also announced a product partnership with DBS in the origination and distribution of equity derivatives-linked structured products at the end of the same year.
However, Numerix went ahead and built Oneview to serve the needs of DBS. “The platform has continued to evolve and today is a complete solution for OTC derivative and structured product price discovery and request for quote automation,” said Steven O’Hanlon,
chief executive officer at Numerix. “It’s been our goal since the start of the DBS project to ensure that this platform would also evolve as a multi-issuer platform, and would be able to be solve many different challenges in the market, not just those of DBS, and on both the buy- and sellside.”
DBS wanted to implement a system to streamline its workflow around structured products and make it more efficient by improving the ability of its equity derivatives structuring and trading desk to respond to requests for quotes and increase trading volumes, according to O’Hanlon. “The driver here is really the automation of the structured products workflow, from creation to post-trade,” said O’Hanlon.
The best way to think about Oneview is as frontoffice platform that can be connected to whichever treasury or back-office system the client would require, according to Satyam Kancharla, chief strategy officer at Numerix. “We are making rapid progress towards managed services, but today, for the most part, this is an on-premise software installation,” said Kancharla. “The technology is an HTML5-based frontend, so it’s very easy to install and maintain. In terms of connectivity, it depends on where our technology is sitting within a client implementation.”
In the case of DBS, Oneview provides Fix messageand email-based connectivity to traders as well as counterparts. Regarding post-trade activity, another middle-to-back system (Avaloq) is operating there, helping to support the post-trade aspects, according to Kancharla. “There are other cases where the touchpoints might be different, depending on how much of the front-to-middle and risk activity is done within our Oneview platform,” said Kancharla. “The exact touchpoints might vary, but the connectivity usually is either Fix, FpML (financial products markup language) or other feed formats.”
Platforms extend from price discovery to technologies that enhance workflow operations, performance and risk management, according to Kancharla. “The key differentiators of our platform, especially as businesses are looking to expand their structured products operations are, first, around product creation itself and, second, the risk management of those products,” he said.
“As our relationship with DBS continues, what remains a differentiator for us is the transparency we’re able to add around structured products - for the desk, risk departments and product control,” said Kancharla. “As a growing fintech company, we have integrated technologies to improve performance around workflow and automation. But, at the end of
the day, it is the core analytic suite underpinning the platform that differentiates our solution.”
Numerix’s technology is, at its core, collaborative to multi-issuer platforms on the sellside, as well as other systems for wealth management and private banking, according to O’Hanlon. “Other multi-dealer networks are providing more of the infrastructure across the multiple liquidity providers,” said O’Hanlon. “In certain cases, we would be using this type of market infrastructure for connecting to and providing liquidity.”
Growth is certainly the trend Numerix is seeking to capitalise on in terms of platforms and the electronification of structured products, which includes the automation of compliance checks and pre- as well as post-trade activity, according to James Jockle, chief marketing officer. “Creating price transparency in this market is also an important issue,” said Jockle. There are initiatives, for example, to assign unique identifiers, just as you would do for an equity or a bond, to structured products. “This electronification, price transparency and secondary market liquidity will continue to be the driver for the next several years,” said Jockle.
“There is still a very bespoke element around the structured products market,” said Jockle. “If you think of many of the single-dealer platforms, they are publishing deal quotes on a regular basis, but a lot of it is still customised products for specific risk profiles or risk tolerances within a client’s portfolio. So, the traditional elements of lack of secondary market liquidity plus the customised bespoke landscape of the market still hampers overall volumes.”
In the Asian markets, however, where there has been more consolidation of financial institutions or financial institutions are looking to expand beyond geographic borders, platforms can facilitate product innovation and ease accessibility. “That’s why we are continuing to witness more and more volume growth in that part of the world,” said Jockle.
While legacy systems have caught up over the years, challenges and gaps remain, including support for the variations of financial products and risk factors, according to O’Hanlon. “Numerix, being more advanced, is able to support any financial product,” said O’Hanlon. “Our system is designed to be collaborative and our technology allows us to amend existing systems that fall short. That will continue. There is also the issue of performance and the need for real-time analytics. We can address real-time needs with our technology even when a back-office system we’re collaborating with is not.”
Atlas - retail /buyside (registered independent advisors, wealth managers)
The Atlas platform was launched in 2008 to provide banks and broker-dealers with a fully-customisable platform and order entry system. The company has access to a diverse list of structures from national issuers that are available for third-party distribution, including, but are not limited to, Barclays, Bank of the West, BNP, Citi, HSBC, JP Morgan Barclays and Wells Fargo. In addition, the company has a broad list of fixed, indexed and variable annuities from insurance carriers, including Forethought, Genworth, Great American, Reliance Standard Security Benefit, The Standard and Voya.
Atlas is the longest used multi-issuer structured products platform, according to Tim Bonacci, president and chief executive officer and Donald Pogan, director, trading and operations. The lifecycle tools are robust, from initial education all the way through to ongoing support years after the product is sold, according to Bonacci. “One of the key elements provided by Atlas is customisation,” said Bonacci. “Much more than customisation for branding and ‘white label’, which we can obviously do, but about matching the workflow and processes of a given broker dealer. That has been well received by firms, because every broker dealer has different operational and compliance processes and we customise this to match each firm’s needs.”
The US market is underserved when it comes to structured products, partly because there have not been many platforms to help with that product adoption, according to Bonacci. “Many brokerdealers have their own specific compliance processes and education requirements and, if the industry focuses on matching those needs better, we will get much better adoption,” said Bonacci. “Also, US market usage is much lower than in Europe or Asia, because there hasn’t been a broadly-used platform that helps to advance the adoption, both from individual advisers as well as the firms that are approving products to be offered.”
The architecture is based around the investor and was built that way because the adoption of the platform, and, therefore, the product, would be dependent on being able to quickly add new broker-dealers or RIAs, according to Pogan. “This is a very important factor and one that our system does well,” said Pogan.
According to Bonacci, “This includes not only
pricing and execution, but also education, training, testing and marketing materials.
“The biggest challenge that we have in the US with structured products is adoption,” said Bonacci. “We have US$60bn a year in volume in the US, which is good, but it is still a fraction of the volume in Europe, because the product set is not as broadly adopted here yet. The business model that will be most successful is multi-issuer, multi-product and even multi-wholesaler. Any wholesale distributor will soon be able to use Atlas, and that will help general structured product adoption. We really need to make an objective, open architecture platform in order for the vast number of brokerdealers and advisors to use.”
Atlas has been built as investor platform, designed from the broker dealer and the advisers’ standpoint, according to Bonacci. “Over the past five years, the development has continued to be focused on furthering customisation for a given firm’s workset or workflow,” said Bonacci. Some singleissuer platforms are trying to ‘jam a square peg in a round hole’, no matter what the individual broker dealer needs or uses are, according to Bonacci. “So, the basic development of our platform has been designed from day one to be easily integrated into any given broker-dealer, private bank, or RIA.”
While the market is fragmented, “some of the platforms out there aren’t actually very well known”, according to Bonacci. “There are a couple of leading platforms, and then there are, at least in the US, a number of newer entrants, including some of the European platforms coming in,” he said. “It is very fragmented, but there won’t be so much consolidation that there will be only one platform in the US. There will likely be two or three leading platforms which have the best market share of the platform market for structured products in the US.”
Despite margin, competitive and regulatory pressures, the platform will be a major initiative for the company. “Technology, especially open architecture, can significantly help with product awareness and adoption, and therefore the growth of the market in a cost effective and compliant manner”.
The company has plans to broaden the use of the platform, partly making it more wholesaler neutral and open architecture so anybody can use it, according to Bonacci. “This effort is just starting now and will be combined with efforts to broadly increase awareness and usage,” said Bonacci. “Additionally, over the next few years, we will be continuing to add significant resource to program new features
and capabilities into our platform in order to ensure it remains and grows much further as a leading technology in structured products and beyond.”
To further adoption of the technology, platforms will need to add more products to the mix as product types are starting to look more similar, according to Bonacci. “Fixed-indexed annuities, market-linked unit investment trusts, and structured variable annuities are starting to look very similar to structured products and including them into these platforms is a natural evolution as well,” said Bonacci. “Any products that have similar features and are somewhat complex in nature will benefit from these types of technology platforms. In fact, we already have several annuity tools built into our platform. We have cross-product comparison tools for market-linked certificates of deposit; market-linked notes; fixed, indexed and variable annuities; and market-linked UITs.”
While the industry has issuer specific tools, used almost entirely for price discovery, Bonacci sees a greater benefit from offering this inside a robust platform that includes education, compliance review and trading functionality. “The platform is positioned to provide these value add pieces to all levels of buyside clients in a fully customizable web application,” said Bonacci. Most competitor systems only have functionality that provides for price discovery of a custom deal from one issuer, according to Bonacci. “Ours allows firms to trade structures straight through to the platform, and we do that with all issuers.”
This is “kind of an old-world versus new world topic for us” as, historically, the only way you would get access to the platform was if Navian was your wholesale distributor selling it on to the broker dealer, according to Bonacci. “In the new world, the platform is open to other wholesale distributors and we will charge a very small basis points fee to the issuer,” said Bonacci.
Cyclops – institutional/ sellside
Cyclops is not a graphic user interface or click-andtrade platform, but the engine behind the pricing tool, enabling users to read any communication or email, and providing pricing and quotes on 15 payoffs.
It will take some time before people move fully and embrace automation, but that is the direction the market is going, according to Daniel Hernandez, head of EMC E-Connectivity Solutions at Commerzbank. “This is no longer an option, and those that have invested in this will be able to capitalise on the infrastructure to streamline business,” said Hernandez. “Technology is also re-shaping the market. Only a few years ago, we were doing 10 tailor-made products per week and we are now doing over 400 products, which gives you an idea of the magnitude. The risk is also higher because the number of products is higher, hence, if something goes wrong, it goes very wrong. Platforms will be key to manage product lifecycles and risk management in general.”
This move towards automation is an opportunity for market players, but “obviously you have to take into account a number of considerations as banks don’t develop functions and services from a ‘green field’ but from a ‘brown field’, which brings up challenges around legacy systems and so on”, according to Hernandez. “The proliferation of platforms in the structured products market has also created a situation where, in the past, one person could monitor the one or two platforms you were pricing on, but, nowadays, you need a whole team because each investment bank is now plugged into a number of platforms, and not only for structured products.”
Such is the influence of platforms that the German bank has decided to treat them as a business line, according to Hernandez. “Overall, we serve three different business lines related to e-connectivity for structured products – platforms, direct connectivity and exchanges - regardless of whether the clients are buying or hedging, or whether they are interested in OTC or securitised products.
As well as being an issuer on those platforms, Commerz is also a single issuer digital provider quoting over 7,500 enquiries per day in Asia-Pacific alone. “Although we have not promoted the direct interface to access our platform externally, clients and investors already access its pricing of more than 15 different payoffs via numerous channels, including web and excel applications, both via email pricing and fix, around the clock.”
Price discovery remains an important element for the front office, however, the needs of clients go beyond that, and they use platforms mainly to improve connectivity and to be able to comply with internal compliance processes and external regulatory requirements, according to Hernandez.
“Platforms are enabling clients to set up a system that matches their workflow,” said Hernandez. “Not all platforms have the ability to adapt to each bank working flow system out there, and that’s why some platforms are not getting as much traction in Europe. Most clients are now looking to connect to platforms that can show you a pool of prices, but can also offer downstream integration, document generation and risk management tools.”
There are companies that specialise in structured products platforms, and others that are involved on enterprise solutions and have added structured products solutions to their offering, according to Hernandez. “To develop expensive single issuer platforms at this stage could be a risky proposition, because you’re not adding much value to some clients where pricing is just one variable and this can be solved already in many ways.”
Clients are seeking a google type of solution – able to do anything – so do not need banks to try to act as an IT provider, according to Hernandez. “As a price provider, my main added value is in the price we can offer and the risk I take to offer you a competitive price, regardless of how we connect,” he said.
The different set-ups and business models make sense when you look at the different target markets, according to Hernandez. “More and more banks are realising that they will have to automate their processes and Mifid /Mifir is driving this new reality especially around the Kid, and other requirements,” said Hernandez. Clients will not expect to get the term sheet from the counterparty, but will want to download them; they also will not want to pay to access the secondary market through a third party platform, and have their own in-house functionality; investors will not want to ask for a price, but will expect a bank to provide prices from, say, 8am in the morning based on their historical preferences and latest events, according to Hernandez.
These developments will also have an effect on buyside behaviour, according to Hernandez. For the sellside, those that have invested over the last few years will be better positioned to take the lion’s share, according to Hernandez. Others will be able to dominate a particular sector, such as B2C, or B2B, but there will be some fragmentation.
Hernandez, expects one or two companies to dominate the market, “but there will always be room for other smaller providers”.
“The technology of some platforms is limited and provide just automatisation on price discovery and
everything else is manual,” said Hernandez. “They don’t offer an integrated system and they’re not scalable. Others have state of the art capabilities. We are open to work with any platforms, because our philosophy is that the client decides if they want to do it themselves, if they want to connect to a different platform, or if they want to continue dealing with us directly. We provide added value in many areas of the chain, including the pricing and the structuring of the product and then we’re happy to help with distribution, but we are agnostic as to how that is done.”
Volumes going through platforms continue to be marginal in Europe (in the single digit percentages) compared to Apac where it is around 90%, according to Hernandez. “However, I expect this volume to grow, both for single- and multi-issuer platforms, as both the buy- and sellside come to realise the productivity and customer experience gains that the digitalisation of these business lines provide to all parties involved,” said Hernandez.
Credit Suisse’s solutions platform, part of the bank’s cross-asset global solutions and formed in October 2015 brings together Argentum, the bank’s off balance sheet structured note issuance platform with its insurance hedging platform and is aimed at helping insurance companies manage more efficiently the risks in their protected insurance products, iCPPI. The business also provides hybrid transactions, repackaged notes and offers liquidity and risk management products to clients.
Earlier this year, the Swiss bank also launched its digital private banking platform in Hong Kong, with the release of an enhanced private banking app for the region, and partnered with BNP Paribas, Citi, JP Morgan and Linklaters to develop the Single Platform Investment Repackaging Entity (Spire), a multi-dealer bond repack platform, organised as a Luxembourg-domiciled special-purpose vehicle that can issue standardised repacks combining underlying credits with attractive asset-swap payouts, for institutional investors looking to buy repackaged structured products.
Spire notes can be arranged by any of the four dealers connected to the platform, enhancing their liquidity and providing risk mitigation, as, if one issuer defaults, another can jump in as replacement
counterparty to honour each asset swap. The Swiss bank has placed five of the 13 repacks issued by Spire, with total issuance by the platform reaching more than US$500m. Three undisclosed dealers have applied to join.
Beyond this, the Swiss bank still offers Argentum, a proprietary repack platform, registered in 2013 as a special purpose vehicle with the US Securities & Exchange Commission to cater to retail and institutional investors. The bank has also upgraded its service offering with Argentum Pro Notes, which combine vanilla bond repacks with payouts linked to the performance of established credit funds. Sold to private bank clients, Pro Note sales volumes have exceeded US$100m from private banking clients. Spire is also helping the bank to expand its base of repack clients, rather than disrupting the bank’s own trade flow.
The average repackaging volume, across Argentum and other flagship vehicles, was $1.5bn in 2017, according to Omar Waly, director, structuring at Credit Suisse. “Argentum is a broad platform used with payoffs from all asset classes, and gives investors the flexibility to combine the payoff of their choosing with the underlying debt (ie. issuer risk) that best fits their investment goals,” said Waly. “Argentum was also designed based on cuttingedge legal advice from top tier law firms, in order to ensure it met ‘SPV 2.0’ standards.”
This refers to the revamp of securitisation SPVs, which occurred in the wake of the Lehman Brothers’ default, and the problems that arose when liquidating the vehicle’s assets and realising the amounts owed to investors. “This necessitates having clear cut early redemption mechanics for the protection of investors, for example, where the arranging bank defaults,” said Waly.
The landscape is becoming more competitive and today there are more than double the number of providers in repackaging than there were in 2014, when Argentum was developed, according to Waly. “The competitive landscape ranges from peers (other large tier 1 investment banks) to local banks, such as the investment banking arms of Spanish and Italian banking groups,” said Waly. “We see a variety of platforms out there, some are highly retail focussed, others institutional based. Argentum is an all-rounder, catering to both client segments.”
Credit Suisse also manages a iCPPI hedging platform. The service, developed in collaboration with Sungard, enables insurance companies to manage the risks on each individual insurance product account. It
includes connectivity, transaction processing, investor administration, and configurable product definition capabilities to monitor and manage the capital protection requirements of each individual investor.
The Nexus platform was launched in 2011 in Europe and Asia offering product building, pricing and issuing for multi-asset classes and wrappers and became an intrinsic part of JP Morgan’s structured products delivery of bespoke managed and systematic strategies to institutional clients.
The platform offers the ability to adjust exposures across a multitude of asset classes without having to enter into a new transaction. Acting as allocators, investors can create their own strategy in which they can adjust the components and their weights, or define a systematic rebalancing mechanism.
It allows clients to create self-managed underlyings delivered as strategies or indices across all asset classes, which in turn are delivered to their own clients as synthetic exposures in the form of certificates, notes, swaps or funds. After initial agreements are established with the bank, institutional clients can regularly rebalance their portfolios and run analytics and reporting. The platform is flexible enough to provide execution in different markets and time zones, but also to provide post-trade services.
The platform provides the same interface and functionalities for all clients, and the platform can be used to address the needs of providers in different markets, such as asset managers that can structure and launch whole funds through self-structured, self-managed synthetic products, including principal-protected, multi-asset and currency hedging products; wealth managers and private banks that can create self-managed investment products; and pension funds and insurers, which can create structures that can effectively hedge liability exposures and rebalance regularly.
Nexus had approximately US$5bn of notional value invested linked to multiple underlying assets and delivered to clients globally in the second quarter of 2015.
JP Morgan hired IBM in 2016 to help the bank “define and formulate” its strategy and to build the infrastructure needed to streamline its offering and
connectivity with advisers and investors. In turn, IBM hired Carmen Palladino, a former structured products specialist at Incapital, as a contractor to work on the platform.
Constructor
Active issuers on Leonteq’s platform:
Aaargauische Kantonalbank
Corner Bank
Credit Agricole
Deutsche Bank
EFG International
Leonteq
Raiffeisen
JP Morgan
Leonteq’s platform turnover in the first half 2017 amounted to CHF12.9bn.
A web-based application that enables real-time structuring, calculation and launch of structured products on over 1,000 underlyings and calculates tradable prices in real-time based on Leonteq market data. Traded products prices are published on Bloomberg, Reuters, Telekurs as well as on the Leonteq webpage. Offered to professional investors in Switzerland only.
Tailormade products
Select a structure - choose the product type to create.
Select underlyings - choose from universe of over 1,000.
Select issuer - choose from eight.
Select the parameters - define the product parameters and maturity details.
Request a price - displayed in seconds or store multiple price requests and retrieve them from dashboard.
Select a Term sheet - four languages.
Click’n’Trade - direct trading. Immediately afterwards, a trade confirmation and final termsheet will be sent. Settlement via the usual procedures.
Features - During market hours and subject to certain size limits, tradable prices (service not available to all clients) or simulated prices are calculated at the time of the request, using quantitative models and market parameters (volatility, dividends, interest rates).
Tailormade products and flexibility - The minimum size for your tailormade product is only 50,000 in the respective investment currency. Minimum size for Hong Kong dollars, Japanese yen, Norwegian kroner and Swedish krona is 500,000, 5,000,000, 300,000 and 350,000, respectively.
Six Swiss Exchange listing - Products can be listed at the Six Exchange, where Leonteq is a market maker, providing liquidity during exchange hours.
Optimiser - The Underlying Optimiser computes all combinations for a given universe of investment through an algorithm with a mix of Monte Carlo and machine-learning techniques. The tool extracts the 30 highest yielding combinations within seconds and every proposed basket can be viewed directly in the pricing form with live prices.
Equity screener - Based on internal and external data, the equity screener displays all available stocks on our platform corresponding to the qualitative and quantitative criteria of the client.
Investor Guide
Underlyings - More than 1’000 underlyings (equities, indices and precious metals).
Minimum Size - in respective currency 50,000 (except Hong Kong dollars, Japanese yen, Norwegian kroner and Swedish krona.
Documentation – Term sheets in German, Italian, French and English.
Structures - Airbag certificate; autocallable; BRC; bonus certificate; capital protection certificate; discount certificate; dual currency note; equitylinked note (Asia); fixed-coupon note (Asia); multichance BRC; outperformance certificate; reverse convertible.
Currencies – Swiss francs, euros, US, Hong Kong, Singapore, Canadian and Australian dollars, UK sterling, Japanese yen, Norwegian kroner, Swedish krona.
www.structuredretailproducts.com
AG Delta’s fintech platform for equity-linked structured products was launched in 2014 to target private banks in Asia-Pacific and eliminate manual email pricing and support requests for quotes and execution to a panel of counterparties and a wide selection of payoffs.
Unique elements include: streamlining workflows between relationship managers and dealers, and between dealers and issuers, which involved the creation of communication standards across issuers, not just for quotes and execution, but also processes, documentation and events pre- and post-trade lifecycle.
The platform was built for dealers, product specialists and client advisors, according to Andrew Au, chief executive officer of AG Delta. “If you don’t understand the daily challenges this community face well, you can’t build the right end-to-end platform to solve the right problems,” said Au. “Sounds simple, but many platforms bombard you with features, [whereas] we try to distil and curate the noise and make our solutions simple and with great end user experience.”
While there are now several order and execution management system platforms and networks supporting structured products, Dealstation is the only one combining best execution with regulation technology and digital-advisory capabilities which address operational efficiency, compliance and the creation of revenue opportunities all in one, according to Au. “This is important, as no function in a bank truly works in isolation anymore,” said Au. “Collaboration is key.”
Dealstation has seen over US$1.5 trillion transacted across all asset classes and wealth investments in the platform, according to Au. “Since the process to handle client and relationship manager enquiries is so cumbersome and manual, most product specialists and dealers are consumed with reacting to reverse enquiries, which still play a strong part of the workflow.”
However, this trend is changing as platforms move from pull (reverse enquiry) to push (smart morning runs, wizards, data-driven ideas and research, quotation sheets that provide more independent DIY capabilities for relationship managers, while freeing up time for execution desks and product specialists to review trends and themes, according to Au.
The benefit comes in the ability to deal with large volumes, which was certainly the case this January, according to Au. “Apart from being a provider of convenience (efficiency), we deliver safety controls (compliance) and enable insight (ideas, themes, aggregated pricing),” said Au.
The company has provided a simple hub for clients to engage - primarily based on usage and optionality of adoption with modules or APIs to support digital initiatives within a bank, according to Au. “We also support industry consortia platforms, such as Contineo, which we co-founded with six other global banks, and open standards which we have driven for both flow and non-flow products,” said Au. “The platform addresses crossborder marketing, Mifid 2, 871(m) and investment suitability, so we offer our regtech as APIs so they can be injected not just at or pre-trade, but at the idea stage of an advisory process,” said Au.
Although there is scope for consolidation in the platform market, proprietary platforms will not disappear completely. “We are creating these Netflix or Apple store effects in the financial industry and various players can contribute to the ecosystem versus a monopoly,” said Au. “All banks and fintech platforms alike need to remind themselves that not one size fits all and will have to learn to open their systems to survive.”
Order and execution management - the platform allows for collaboration between bankers, product and investment advisory and deal execution functions with full maker-checker approval workflows. A wide spectrum of investment options in the product catalogue (including foreign exchange, equities, rates, fixed income, commodities, derivatives and structured products).
Multi-asset market connectivity - supports connectivity through direct integration to trading and execution networks providing access to wealth product issuers. Wealth advisors get a broad range of investment options in the product catalogue. Wealth advisors and buyside dealers can source the best market price swiftly from a panel of suppliers without relying on phone calls and emails. Requests for quotes are sent to multiple counterparties simultaneously and responses aggregated with the best price prioritised and ensuring best execution regulatory requirements are met.
Enterprise system integration – includes an open architecture approach that supports all middleware
messaging standards, providing adapters to banking, trade booking and order allocation.
Real-time compliance monitoring - integrates and enforces compliance in the wealth adviser workflow to ensure engagement is in line with local market requirements, covering compliance and ensuring no missing documentation, product suitability mismatches or incomplete customer profile information errors can arise. Wealth advisors are informed through alerts with detailed explanations on the compliance to be performed before the next action in the workflow. All workflow events are captured and monitored for a complete compliance audit and reporting capability.
RFQ-hub launched its structured products offering in 2014, and was the first independent multi-issuer platform to be rolled out in Europe, according to Géraldine Laussat, head of structured products, RFQ Platforms at ITG RFQ-Hub. “Since then, we have developed the platform and have onboarded a range of clients, including private banks, brokers, asset managers and pension funds,” said Laussat. “RFQ-hub is not only deployed in Switzerland, but also in France, Benelux and Germany, which gives a European footprint.”
In 2017, the platform doubled the number of clients as well as the volume transacted. “The goal has always been to increase the connectivity between issuers and investors by improving the level of service offered to market participants that request more automation in their process,” said Laussat, adding that the next step of development is implementing an intelligent protocol of connectivity to cover the full workflow from pre-trade to post-trade. “This kind of automation helps to simplify processes that have become heavier for market participants aligning with more regulatory requirements in Europe.”
The total structured product traffic volume via RFQhub in 2017 reached a record of €5.1bn versus €2.9bn in 2016, according to Laussat. “Trading via multi-issuer platforms is still marginal but we think this segment will require some time to take off,” said Laussat. “It will go through the same kinds of developments we have seen around other asset classes, and platforms will be a key feature in this market. The market remains dominated by manual processes (email and chats), but this is changing and we expect platforms to have a
similar status to those in the corporate bonds or ETFs as the market evolves.”
The platform has followed a business model based on four IT blocks of development, according to Laussat. Firstly, it was developed under the premise that customisation can be provided alongside standardisation. “The more we work with clients the more we realise that structured products are transacted differently by regions and by investors, and we wanted to develop something that will work in different markets and will meet the needs of those investors,” said Laussat.
Secondly, the challenge in Europe is around payoffs and ITG wanted to develop a platform that allows clients to input all volumes, irrespective of payoff and that would be fully compliant with the market’s expectation ahead of Mifid 2, according to Laussat. The third block of development involves workflow. Europe is probably the most complicated region in terms of workflow (primary market covering private placement, public offering/book building workflow for marketing campaigns and grey market), according to Laussat. “The fourth block will focus on secondary market functionalities,” said Laussat. “Platforms are changing how market participants work with structured products as they have a much clearer view of their business.
“We are working to develop the right protocol of connectivity to be able to connect to the issuers’ systems and the clients’ post-trade product management systems,” said Laussat. “For the first time, this trend is driven by increasing volumes, the impact of regulation on the trading of structured products and requirements from market participants to streamline processes and reduce operational risk.
“Platforms are responding to new requirements, and European players will have to comply with Mifid II and Priips,” said Laussat. “Clients will expect platforms to provide improved traceability with the ability to support transparency and communication requirements (email, chats and phone calls) and best execution (ability to provide evidence from the audit trail).”
A second consideration is that European clients are looking for a centralised system to keep all the required documentation for their transactions, and platforms can streamline this process along with the creation of customised reports for Mifid 2, according to Laussat.
Data will be a game changer as platforms are providing a venue to transact and using data
captured on the platform and the statistics to help clients have more visibility and monitor client activity and volumes, as well as to identify the number of actual RFQs, the number of traded products and compare different trading books, according to Laussat. “The platforms that can also partner with product management systems to include the portfolio management process, independent valuations and products’ lifecycle will be in a good position to increase their market share,” said Laussat.
ITG acquired RFQ-hub in July 2014, a platform that connects buyside trading desks and portfolio managers with a large network of sellside market makers, allowing them to place RFQs in OTC-negotiated equities, futures, options, swaps, convertible bonds, structured products and commodities. The platform was rebranded as ITG RFQ-hub, but will remain standalone, although integrated into ITG’s Triton execution management system.
RFQ-hub was founded in France in 2008, has 25 employees, with headquarters in Paris and representatives in London and Hong Kong. ITG has also completed the integration of ITG RFQ-hub with the ITG Position Manager order management system, enabling global macro and multi-strategy hedge funds to trade and book a wide range of listed and negotiated derivatives, ETFs and structured products with multiple liquidity counterparties.
The OTCX platform was launched in 2014 by buyside technology experts with the aim of bringing functionality and product design to the OTC market, as well as providing a better OTC environment for buyside companies, including institutional asset managers, hedge funds, sovereign wealth funds and private banks. As well buyside clients, OTCX is supported by a global liquidity providers. The platform does not share its infrastructure with other companies or services.
Nicolas Koechlin, chief executive of OTCX, has a background in front-to-back solutions for the buyside more in fixed income than equity derivatives. “My observation at the time was that technology within companies, within the buyside
was improving,” said Koechlin. “The management systems, middle-office, back-office systems, all these systems were getting better and better at transacting derivatives and OTC products. But, when it came to sourcing prices for those products, it was still pretty much a manual process. I could not believe how much was done on chat, on phone and on e-mails, and, especially in equity derivatives, it was e-mails everywhere.”
This provided an opportunity to build, using new technology, a browser based platform, a communication portal that both sides could access to transact through it. “We looked at it from the buyside view, rather than the sellside imposing a system,” he said. “All our experience came from the buyside and we wanted to use buyside systems to offer not just a communication layer buyside/sellside, but also be able to integrate the information that we push through the portal with internal systems.”
OTCX is browser delivered – also known as private cloud because the company has its own servers, but it is cloud technology-based, according to Koechlin. “We allow, in the context of structured products, buyside/mainly private banks, to create different types of payoffs into the platform so that they can put banks into competition when they run an auction,” he said. “Once a private bank knows the instrument for which they want a fix price that’s when OTCX kicks in. All the indicative pricing at the moment is done outside the OTCX access. They go to the single dealer platforms for that. The essential element was, when there was real trading, they needed a firm price and a proper price discovery and auction process.”
OTCX can create a complex strategies and model them into a spreadsheet which can be dragged and dropped. “Then you would invite whichever counterparties you wanted to quote on your payoff; all the quotes would be aggregated and the user, not us, would select the best quote,” said Koechlin.
In terms of technology, the platform is offered on a browser to browser basis, “because banks don’t want to hear about anything that needs local install”, according to Koechlin. “We always knew that the only way this idea could take off quickly was if it was as easy as logging onto Amazon,” said Koechlin. “IT departments at banks are very reluctant to install anything, especially anything that talks to another system. The concept was, we bring the information to your doorstep, you can download it into your environment and then you can upload it back into OTCX, but it had to be a light footprint.”
According to Koechlin, one of the main issues around platforms in the structured products market is conflict of interests and ownership, as well as legacy systems. “Because of our set up, we are now growing within that firm which is headquartered in New York and have rolled out our platform there,” he said. “We are developing a great relationship with our client and we are going to try and push out to Asia very soon.”
Fees are based on a fixed ticket price per transaction, while the buyside is charged an ongoing subscription fee. “You pay as you win,” said Koechlin. The fact that there was a flat fee helped. “We have slightly modified our sell side fee recently so that there is a small support and maintenance fee,” said Koechlin. “The buyside doesn’t pay anything if they use the platform as is, but, if they need integration or special reports, we will charge a fee for that work and possibly ongoing support and maintenance. Essentially, the sellside is still “Pay as you Win” with a fixed fee, but we are looking to roll out our small support and maintenance fee as the sellside would like us to add more features for them.”
There are other models where issuers pay a membership fee and technically it is free to the buyside, “but there is no transparency on the costs”, according to Koechlin. “Other platforms have a basis point model and others offer an enterprise solution, but when you go down that route you are signing up to big projects to have true end-to-end,” said Koechlin. “There are different type of engagement and different propositions. Our unique selling point is that we have a light footprint.
“Our plan is to continue working with people and go out and access the wider market and raise awareness,” he said. “We wanted to make sure that we did build something that clients like, and we are now ready to promote it actively in 2018.”
OTCX can be differentiated from others through technology aspects such as the browser, the light footprint, and the ease to onboard, and the fact that the firm is multi-issuer, with 13 or 14 of them on the platform, and independent addresses any issues around conflict of interest. “That actually has make us think that we are going to have a plan to go to Asia because we want to talk to seven product providers that we have on our platform and that are not on rival platforms,” said Koechlin. “The main market is equity linked, but there is a market for other underlying assets and now we can truly handle WTI contracts, FX and interest rate products, bonds, you name it. We can create a note for anything.”
The company is also seeking to capitalise on opportunities arising in North America. “It is not as sizeable as Europe and Asia, but there is a market,” said Koechlin. “When we talked to the new issuers that joined the platform over there, they recognise that everything is on email, so there is a lot of work to be done there.”
In Asia, OTCX is aiming at becoming an established platform in 2018. “We are going to ramp up visibility and continue working hard with the clients that we have,” said Koechlin. “At the moment, there is room for everybody. The bottom line is, we all have to push a little bit further before we come to a situation where it is time to merge or consolidation is needed. With all the new regulation, such as Mifid 2, private banks are coming round to the fact that they need to have better systems and better visibility, transparency and auditing. The consolidation will probably be in two years’ time.”
One of the areas with scope for platforms to bring efficiency is the secondary market, which is in the pipeline for 2018. “[Around] 80% of people looking at the platform have asked us to do a secondary market offering,” said Koechlin. “At the moment they can pin those platforms via one email, and they get all sorts of spreadsheets and emails back. We need to automate that process.”
There is also more to do around data analytics and lifecycle monitoring tools, as the industry moves from the basic email chat to the platform. “We can now start looking at features that exist in other segments of the market and start looking at bringing these into the structured product world,” said Koechlin.
OTC negotiation - Advanced platform to negotiate and streamline trading for all interest rate and equity derivatives, structured products and other OTC instruments.
Straight-through-processing - Connects to OMS, EMS or PMS, with data messaging formats, including Fix, web API, XML or file-based.
Transaction cost analysis - Execution reporting and broker performance analysis.
No desktop installation - Accessible from secure web browser with no additional software.
Operational risk - Reduces manual intervention and automatically builds a rich and Mifid 2-ready audit trail for trades.
Role segregation - Permissions-based user profiles allow team-based sharing of OTC trading.
Community - Buyside access to OTC liquidity providers.
Compliance - Monitor and evidence best execution.
Cloud - Real-time, browser-based access delivered securely by private cloud.
Connectivity - Integration with internal buyside systems and pre- and post-trade networks.
OTC trade capture - OTC price discovery, negotiation and affirmation; pre- and post-trade allocations; real-time notifications, including customisable alerts and email; quick addition of new derivative instrument templates; Isda validation matrix across counterparties; integration with posttrade networks.
Modelity Technologies was established in 2000. “In contrast with other price discovery and execution platforms in the market, we offer a fully operational platform that automates the complete lifecycle of a product, and provides a comprehensive solution to the financial institute,” said Asaf Seri, chief operating officer at Modelity Technologies.
Clients receive “not only issuance functionally (RFQ and trade), but also trade ideas generator, analytics, regulation compliance (Kid, Mifid 2), term sheet generation, performances reports, booking and position management, mark-to-market prices, mid-office transaction and process management, interfaces to bank core systems (such as: deposit system, accounting systems, data warehouse), best execution logic – customised to the buyside bank,” according to Seri.
“The operational system integrates with the bank’s core system and acts as an extension of the core systems for complex products...
substantially lowering the costs of the production and maintenance of a product”, according to Seri. “Because of that, we make it possible to lower the ticket size, the complexity of the products and enables the bank to approach new groups of clients,” said Seri. Retail investors can invest in their own bespoke products with investments as small as US$5,000, according to Seri. “As more and more complex products will become flow-oriented products, clients will need a full solution for the operation and the management of the complete lifecycle of the financial products,” said Seri.
Despite increasing activity across markets transaction, volumes going through ‘click and trade’ venues remain small compared to what goes through the reverse enquiry channel, but as the market evolves “and more banks are committed to using platform, in some cases as their sole issuance solution, the usage will increase significantly”, according to Seri.
Regulation has also had a catalytic effect with challenges, and new requirements push market players to invest in more efficient automated tools and methods, which reflect on the acceptances to adopt a fully automated platform, according to Seri. “On the other hand, platforms and technology have a global nature, but different regulations in different regions contradict this nature and force challenges for the various platforms,” said Seri.
“The market is fragmented in a way where each platform can find its own path, as long as it can differentiate itself from the other players,” said Seri. Most banks are now plugged into existing platforms or have developed their own hubs, which will translate into new industry standards that will be adopted by product manufacturers and distributors, according to Seri. “Consolidation will be driven from a technological point of view, ie. formats and protocols will be developed and shared across multiple platforms in order to allow ease of integration between players and platforms,” said Seri.
Modelity Technologies is a privately held company, focused on providing banks, insurance companies and other financial institutions with a platform for financial modelling and portfolio analytics. The product offering consists of fully configurable, financial model libraries and a platform for creating and delivering financial analytic content. The offering comprises: Modelity Structures and Modelity/Advisor.
Based on Java, Modelity/Structures is developed as a cross-platform solution, enabling it to run within most operating systems, on a wide range of internet browsers, database providers and application servers. The company is implemented in an N-Tier Architecture, and products are composed of the following layers:
Each product’s presentation
Each product’s business logic
Modelity/Models-engine
Financial data storage
The independence of the presentation layer enables adaptation to client needs and standards, including an option to invoke each product’s functionality from within in-house applications.
Modelity/Structures is available in two modes: Software as a Service (SaaS) or as an in-house implementation, and is a complete sales, support and management tool for structured products
A quicker sales process
Elimination of errors
Shorter time to market for new products
Avoidance of time-consuming manual work
The sales module is focused on structured products transparency and explanation, enhancing the seller’s relationship with the end client. Computed outputs, such as historical performance, stress tests, VAR and Monte-Carlo projections are presented in graphical and numerical formats. The design module enables structured products families, logics, products and payout logics to be designed and tested without any specialised programming skills.
Performance reporting - Based on calculations performed by the payout engine, a reporting and visualisation mechanism produces reports showing the actual performances of live structured products and their underlying instruments. Actual performance to date is illustrated and additional features, such as anticipated returns based upon performance or expected and potential performances, may be included. Various aspects of product logic are visually illustrated to assist client understanding, for example:
Samples (eg. Asian, cliquet)
Outperformance
Knockout, knockins, barriers, tunnels, ranges
Accrued coupons
Weightings (eg. rainbow, momentum)
Conversions (eg. in reverse convertibles)
Modelity/Advisor provides advisors with individual portfolio analysis, control and management tools and is designed for face-to-face consultancy, the provision of personalised advice, accounting for client risk tolerance, financial constraints and expectations. Its processes can identify sales opportunities and ensure compliance with regulatory requirements. The platform analyses portfolio risk and performance, based on industry standard or customised models. It is an open box solution, available as a customised combination from its components menu:
Profiling and optimisation - Provides optimised portfolios, based on client profiles, accounting for risk tolerance, client constraints, institutional and regulatory constraints, financial expectations and investment universe
Risk management - Analyses client risk levels using models, including historical simulation VAR, parametric VAR, Monte-Carlo simulation and others. The risk level may be calculated in real time or as a scheduled task that assists in identifying clients as they deviate from their desired risk levels.
Performance attribution - Analyses client portfolio past performance. The return is calculated using time-weighted and moneyweighted returns, or combinations of the two. As the algorithm used to calculate the return is implemented using financial modelling markup language, it may be changed by the user. In addition to the return calculation and analysis, additional statistics such as management efficiency factors (eg. information ratio) may be calculated.
Financial planning - Enables financial institutions to offer planning to clients and help them prepare for life goals and retirement. Using Monte-Carlo simulations on market scenarios and a user interface, a client can estimate the probability of reaching financial retirement goals and perform what-if simulations under various assumptions.
Management and supervision - Facilitates constant surveillance of risk levels, efficiencies and other portfolio characteristics. Supervisory data may be used to locate global or local inefficiencies and expectations at the adviser level (ie. an advisor’s client base), branch or regional levels. Adviser activation functionality dramatically enhances screening capability. Advisors are able to increase sales and transactions by screening non-optimal portfolios, detecting changes in risk levels and identifying portfolios with overvalued stocks.
Financial modelling infrastructure - An integrated development environment for financial modelling. On this platform, new financial models may be developed without any programming skills. Developing a new model within this environment takes a fraction of the time it takes to program the same functionality within thirdgeneration programming languages, such as Cobol, C++ and Java.
CAIS is a New York-based financial products platform for registered investment advisers and broker-dealers offering structured products and funds through an open-architecture set-up. The platform was launched in 2011 and provides ‘streamlined execution to an expanding list of alternative investments, capital markets syndicate offerings, structured solutions and real assets’. The platform also provides a suite of portfolio construction and reporting tools, and complements its fund offering with independent due diligence provided by Mercer.
CAIS has distribution agreements with BNP Paribas, JP Morgan, Morgan Stanley and RBC to create a diversified, multi-issuer line-up of structured solutions. Before the addition of new providers, CAIS’s structured solutions offerings only included products from Goldman Sachs. The approach to structured notes mirrors the open architecture model of its funds menu, with access to a selection of banks and products providing credit diversification and institutional pricing.
The platform offers access to a range of alternative products, including hedge funds, private equity funds, ’40 Act mutual funds, equity and debt, and precious metals. Advisors are not charged to use the platform; product providers pay fees generated by the products that advisors use.
The structured products menu includes educational materials.
Products - Turnkey access to an increasing selection of in-demand funds and products.
Functionalities: Customised notes and calendar offerings; performance tracking; secondary market bid/offer display; and product support and education
On November 2017, Transparitrade (TPT), a spinoff from Wallstreetdocs, launched a multi-dealer trading platform for the US structured products market, providing comprehensive educational tools, including around 100 written tutorials covering general investment and, specifically, structured and exchange-traded notes and structured certificates of deposit.
The company completed a roadshow of US brokerdealers in 2017, gaining registrations from Advisors Asset Management, Ameriprise, Incapital, LPL and Raymond James. Issuers will pay a fee on the basis of the volume traded above the amount traded in the previous year, a feature that has been introduced to ensure that fees are not paid on cannibalising existing, non-platform business. The initial launch of the platform had a focus on encompassing education and training material, as well as market data on issuance volumes and market trends.
“TPT is an entirely independent (non-issuer/ non-distributor) fintech provider with a unique understanding of the retail structured products market having worked with more than 20 of the world’s largest product issuers in supporting their documentation and trade workflow requirements for the last 10 years,” said Allan Angell, president at TPT/WSD. “TPT has a strong focus on education and training, as we believe a major requirement of any platform is to increase the awareness and understanding of the market, as well as to provide users with the tools they need to seamlessly price, trade and review structured products in an easilyaccessible and mobile online platform.”
The platform is for wealth managers to browse, select and transact funds and other products, and can be used to view due diligence summaries, construct portfolios, track client investments and access thought leadership articles.
Despite the increasing noise around platforms, sales volumes remains marginal compared to that going through the traditional reverse enquiry model with only 5% of transaction volume is conducted via platforms, according to Angell.
However, the potential for platforms to gain market share is real and their weight in the market
will also increase on the back of improved user experience which “is a fundamental point to get right”, according to Angell. “The user journey from logging into the platform to pricing to trading and running post-trade analytics needs to be efficient and seamless in order to drive platform usage,” he said. “Pricing and trading functionality are core requirements, however there is an increasing demand for more peripheral functions including workflow management, legal document automation, trade data reporting (for regulatory reasons), post-trade analytics and product performance reviews.”
It is not enough to simply provide pricing and trading capabilities in isolation, as a successful platform needs to become a one-stop solution for all trading, reporting and product review activity to become a viable alternative for buyside, according to Angell.
Issuers are reluctant to pay additional platform fees simply because their existing issuance activity moves to a platform-based model, according to Angell. “With that in mind, our fee model ensures that issuers are only charged notional-based platform fees on any increase in issuance activity that results from platform usage and therefore not cannibalising their existing business,” he said. “This ensures that the interests of both the platform and the issuers are aligned - increase the size of the market overall rather than simply charging additional fees on the business issuers are already doing.”
The platform landscape is still fragmented and the market has yet to see a “truly independent and open-architecture platform” that is accessible to any issuer and any distributor simultaneously, according to Angell. “The emergence of such a platform will drive consolidation,” said Angell.
Transparitrade is a comprehensive multi-issuer platform developed for the US structured investments market, encompassing standardised know-your-distributor questionnaires, education, online certification, pricing, trading and analytics and can integrate with existing back-office administration tools. Product coverage will include structured notes, market-linked CDs, exchangetraded notes and fixed-income annuities.
It is available completely free of charge to wholesalers, broker-dealers, private banks, RIAs, institutional clients and other distributors.
Education - Comprehensive educational content in the form of written and video tutorials, product categorisations and a glossary with broad coverage of common payoffs. Developed in partnership with a US law firm and fully customisable by organisation.
Certification - Online certification exams covering beginner, intermediate and advanced level content with in-built alerts and notifications of certification renewal requirements. Customisable by organisation to adhere to internal legal and compliance requirements.
Calendar offerings and order management - Browse structured note and market-linked CD calendar offerings from multiple issuers with a comparison tool to allow for up to five-way comparison of different products. Inbuilt Cusip management tool to control access across advisor networks.
Investment review - Post-trade analytics and downloadable performance report documentation, secondary market pricing feeds and lifecycle alerts and notifications including coupon payments, barrier breaches, approaching call/autocall dates, maturities and corporate actions.
Product builder - Tool to design customised deals and request live pricing from different issuers for a broad range of common payoffs with dynamic graphical and narrative overview of customised deals as they are being created.
Underlying explorer - Carry out detailed analysis on a range of potential underlyings, compare historical performance data of up to three different underlyings and run analysis of historical performance against customised barriers.
Standardised know your documents questionnaire - Standardised online KYD questionnaire developed with US law firm to satisfy KYD requirements of multiple issuers simultaneously with supporting centralised questionnaire repository.
Integration - Ability to integrate with existing settlement systems and other back-office administration tools.
Launched in the UK in 2017, ResonanceX is a digital multi-issuer platform aimed at enabling the automation of the issuance and administration of structured products. The platform has been built in collaboration with Nivaura, which is an Entrepreneurs in Residence at Allen & Overy’s Fuse tech innovation space, as well in the JP Morgan inresidence programme.
The platform seeks to develop new distribution channels for structured products for high net worth investors, family offices and asset managers, and provides end-to-end automation of client onboarding, price discovery, execution and lifecycle management of structured products with product details, post-trade analytics and associated alerts, along with access to a liquid secondary market during market hours. ResonanceX has been designed to embrace the regulatory framework, and will pioneer the use of blockchain asset custody for structured products, as well as predictive analytics and cognitive messaging to support clients in investment decisions.
The trading of structured products remains expensive due to a lack of automation and a surplus of intermediaries, which becomes particularly apparent when engaging with principals, independent financial advisors and family offices, according to Guillaume Chatain, founder and chief executive officer of the technology company. “We aim to use technology and market expertise to reduce costs and make structured products more accessible and transparent for retail and institutional investors,” said Chatain. “There are a number of multi-issuer platforms out there increasing the connectivity between issuers and distributors, which is an improvement. We see an opportunity to bring issuers and investors together, putting the tools in the hands of those investors and educate them about how structured products can bring value to any portfolio.”
The platform is being launched in Europe with a view to develop in Asia, as it is the obvious market to bring this kind of multi-issuer set up, according to Chatain. “Asia is a very transactional market, there has been a significant compression of margins, and the difference between different issuers could just amount to a few basis points,” said Chatain. “Private banks and relationship managers are very sophisticated in Apac and, if you give them the tools to make the process more transparent and manage their clients’ investment portfolios more efficiently, it is a win-win for issuers and investors, which is why the model has gained traction.”
Since the financial crisis, investors have become savvy about structured products and are often questioning why the product mix is so skewed towards the product manufacturers and the distributors, according to Chatain. “Technology is helping to bridge that gap and we saw an opportunity to bring something different to the market,” he said. The company has been working with the UK Financial Conduct Authority (FCA) for almost a year, and as one of the few companies accepted in the 3rd cohort of the FCA Regulatory Sandbox, has also benefitted from interactions with “FCA Innovate”.
“Being 100% digital platform also gives the ability to immediately store large amount of information and data, and address requirements around best execution,” said Chatain. “This set up can also be used to supply data around all platform activities, notional, barriers, types of products, and this can be accessed on the fly and in real time in case of audit.”
Another differentiating factor of ResonanceX is it is demonstrating in the FCA Sandbox its capability to register, clear and settle assets on a public blockchain, instead of through a centralised entity, such as Euroclear or Clearstream. “This should provide important savings in production cost, which will be translated in better economics in the structured products we will distribute,” said Chatain.
The infrastructure technology behind the platform is provided by Nivaura, the only company in all three cohorts of the FCA regulatory sandbox.
“The market is moving towards a multi-issuer set up, because not every investment bank has a platform and it is a very capital intensive exercise to build one,” said Chatain. “Single-issuer platforms have a captive market and need to continue serving those clients and improving their service and offering. We recognise platforms such as ours will also compress margins although we are not looking to become an issuer ‘supermarket’, but intends to onboard the right number of quality counterparties to address best execution, offer credit risk diversification, and create an ecosystem where both investors and issuers can benefit.”
“Some markets in Europe are transactional (Switzerland, Germany) and multi-issuer platfroms are used to their potential,” said Chatain. “Other markets, such as the UK, do not immediately provide the best framework to launch an MIP, because the plan set-up dominates the market. Every bank has its own distribution channel and it is challenging to change that approach. In the UK, you
see 10-year products, which are not an efficient way to deploy structured products. The optics may look good, but investors don’t get enough compensated for the lack of liquidity, credit risk and interest rate risk over such long time period.”
Platforms will also help investors and product manufacturers to use simpler, shorter-dated structures that can be used in a more opportunistic way. “The market has too many products at the moment and technology will help streamline this market and make it more efficient and transparent, so investors can focus on the products that make the most sense in their portfolios,” said Chatain.
An independent electronic platform that enables automation of price discovery, issuance, execution, administartion and lifecycle management of structured products using centralised or blockchain asset custody. Aimed at sophisticated investors seeking to design, price and trade bespoke structured investments across a range of global reference assets. Independent distribution channel for structured products for high net worth investors, family offices and external asset managers.
Highlights - Transparent and cost effective platform to trade and manage complex investment solutions. Interface enables investors to manage a portfolio of structures with product details, lifecycle events and associated alerts; and access liquid secondary market during market hours.
Blockchain - End user platform on blockchain infrastructure for clearing, settlement and custody of client money and assets, reducing issuance and administration costs, and ensuring compliance with regulatory client money and asset rules. Blockchain infrastructure enabling smart contracts to redefine legal standard agreements for structured products. Predictive analytics and cognitive messaging to support clients in their investment decisions.
Riverrock was launched in February 2018 as a digital structured products multi-dealer platform.
“Intermediaries - of which there are around 50 or more in Europe - are seen as distributors by the
investment banks, but some of those firms have also engineering capabilities and they have their own investment solutions,” said Nicolas Gaumont-Prat, managing director at Linkedtrade. The intermediary part of the market has become under pressure because of new regulatory requirements (Mifid 2), the global compression of margins and the fact that clients expect more services, according to GaumontPrat. “The current set-up is not sustainable, so we are providing a full digital platform aimed at replacing the intermediaries, independent engineering and independent sales so in a way the platform provides a digital structurer and a sales team.”
LinkedTrade is a software as a service (SaaS) platform which enables private banks and asset managers to provide their clients with pricing and life management tools and solutions in designing and trading bespoke structured products including suitability assessment, price comparison and lifecycle monitoring
“New opportunities provided by artificial intelligence highlight the need to implement such solutions within our industry,” said Gaumont-Prat. “The platform covers cross-asset derivatives across pay-off structures and is targeted at private banks and asset managers so their relationship managers can use it as a digital assistant.”
The existing structured products platforms in the European market such as Vontobel’s Deritrade are not seen as competitors, as Linkedtrade is “the only independent platform in Europe”, according to Gaumont-Prat. “Other platforms are owned by investment banks and every platform can price the standard products used by private banks such as reverse convertibles, autocalls, and Phoenix structures so the business model is different. We offer that, but as an independent provider offering pricing from different providers.”
Linkedtrade is the first independent digital marketplace for designing and trading structured products.
Personalised experience: Provides innovative tools to improve clients’ services and match investor needs
Connecting the dots: Offers a modern multi-dealer platform to provide market access
Insights: Targeted solutions and micro-level portfolio management for investments of any size
Structured products trading platforms have introduced a level of automation that has improved governance and reporting as well as provide cost-efficient ways to operate, while enabling financial institutions to tackle the most pressing regulatory obligations relating to valuation and risk management requirements for OTC derivatives and structured products.
Platforms can help both buy- and sellside financial institutions, as new regulatory deadlines loom large and the volume and complexity of contract work needed to meet compliance obligations increases specially around the Markets in Financial Instruments Directive 2 (Mifid 2) and the Packaged Retail and Insurance-based Investment Products (Priips) Regulation, which are aimed at solving issues that arose during the financial crisis of 2008 and bolstering investor protection.
We asked the leading platforms professionals for their views on how platforms can help to solve new regulatory challenges and requirements, and how automation could be a game changer for the structured products market.
Particularly the timing challenge around the delivery of Priips Kid, together with the review and revision requirements and the sheer scale of the legislation has forced manufacturers to automate product creation. Theoretically, a platform can solve the problem of pricing a product, as well as cater for the production of the documentation required for the Priips Kid and some of the other disclosure documents. But platforms can exacerbate the production issues, since all potential features needs to be covered off and there will be less human interaction to check accuracy. And the concern is multiplied if the platform generates multiples of new products and variations. We are seeing with the Priips Kid just how challenging it is to get these
documents right across the universe of products and variations thereon which may be sold to European retail investors.
From an investor’s perspective commoditisation by standardisation, such as the multi-issuer and standard repackaging platforms, makes the investment decision and the process a bit more transparent between products. Investors will better understand the different risks between the different products, which also helps comparability, if the framework in the background between them is all the same.
Regulatory compliance for complex products is now coming at a higher cost. We see that as a major driver for commoditisation, particularly developments in terms of automation and the third party provider model, where a wide range of functions are outsourced. The other driver for commoditisation is familiarity for investors, increasing investor trust and confidence in the market. We see that particularly in the standardised repackaging platform developments.
There are a number of models that existing and new players are using - both sell- and buyside. Legally, one of the important things is allocating responsibilities. This is particularly so for product governance obligations – clearly allocating manufacturer and distributor obligations.
The Priips Kid regime implementation has also been a very interesting development, looked at
“Mifid 2 makes it clear that, if you don’t automate some of the tasks and functions around buying and selling structured products, you will have problems operating in this market.”
Geoffrey Rodrigue, Global head of business transformation, equity derivatives at BNP Paribas
from the different ways that structured product providers have responded. We are seeing quite a wide range of responses as deals are starting to go live. Without doubt, there is always a balance between the attraction of automation and the potential for greater contractual uncertainty. A machine-based process will only be as good as the design and testing process. It should be the case that the room for error is reduced, but, if flaws exist, errors can be more widespread than in a manual process.
Looking at regulatory responsibilities, there should be no reason why, for many deals, a product provider cannot use an efficient and commoditised way of dealing with the documentation and process of many deals, even getting a long way towards end-to-end solutions, from deal origination to settlement. At the same time, with Mifid 2 and manufacturer obligations, the responsibility to define and notify the target market is substantial. A lot of the new product governance requirements are familiar from the UK RPPD requirements, which UK authorised companies know well and have grappled with for some time. Mifid 2 asks for a qualitative and substantive approach to product design, working collaboratively with the distributor, checking to what degree you have reached the intended market and ongoing lifecycle responsibilities. You try to do things as efficiently as possible, but product governance requires managers and product experts to be closely involved.
The devil is in the detail. The IT experts in the market are very impressive, the lawyers know what they are doing, the specialists within the banks know what they are doing, but there really needs
to be collaboration to ensure that the outcomes comply with regulatory requirements.
Lawyers need to understand the requirements of IT automation, and IT specialists need to understand the nuances of the regulation, while investment banks need to think carefully about how automation can be used most effectively. Commoditisation can be consistent with regulatory responsibilities and, at the end of the process, we still need a product that is attractive and meets the requirements of investors.
Global head of business transformation, equity derivatives at BNP Paribas
The platforms game is no longer about just giving structuring and pricing tools to clients, it is also about helping them to match the regulatory requirements.
Regulation has been a focus over the last few years, especially Mifid 2 and Priips. Mifid 2 makes it clear that, if you do not automate some of the tasks and functions around buying and selling structured products, you will have problems operating in this market.
The new requirements and the amount of information the buy- and sellside have to deal with make platforms an interesting proposition for the automation and streamlining of a number of things, such as transaction reporting, post trade and, most importantly, costs and charges disclosure and the
“Particularly the timing challenge around the delivery of Priips Kid, together with the review and revision requirements and the sheer scale of the legislation has forced manufacturers to automate product creation.”
Michael Logie, Partner at Ashurst
target market or Kid generation. Those issuers that cannot provide this kind of service will struggle to increase their structured products.
Mifid 2 may force some investment banks without platforms to embrace this set up, and bolster their weight in the market. We expect one or two multiissuer platforms to be active in each region and an increase in their market share around simple products. These platforms can offer value to investors and we will connect to those and compete for trades with our pricing.
Senior product manager, Primegate multi-issuer platform at Commerzbank
Trading via a platform is much more complicated than just issuing the product and bringing it to the market. If a normal retail client wants to invest €500,000 in a reverse convertible, you need to comply with the Mifid 2 regulation, and need to fulfil a number of requirements. Under this regulation, providers need to make a target market assessment to make sure the product target market is in line with the client risk profile. We concentrate on being
“Regulations, in general, have put immense pressure on issuers to not only price or get quotes on products, but to provide timely reports on those transactions.”Milind Kulkarni, Chief executive at FinIQ.
an open platform, independent of any issuer, and offer to issue the product with a mechanism behind it; that gives the broker the possibility that static data for the product is already in place.
Target market assessment under Mifid 2 or reporting and so on does not need to be achieved by the Primegate platform, it will be achieved by the normal process of buying a product. When you use the platform, you have the possibility of accessing a
primary market trade with the legal requirements of a secondary market trade for the client side as well as for the bank. The aim is to eliminate manual processes. Everything should be based on straightthrough processing. There should be no manual documentation, no email, no excel sheet.
Under Mifid 2, it will be very hard to find a way to issue products and trade them intraday with a retail client. There are several ‘chicken and egg’ issues with regards to providing the final documentation before you trade a product. We can do this on our platform. Under Mifid 2, we are already live when it comes to sending target market data to the market via the wealth management data service. We can calculate all relevant risk scenarios that you need for the Priips regulation on the fly, and that is the main problem, because you need to calculate product value for a product which is not on the market. The solution is quite complex, but it works pretty well.
We are working on a number of initiatives, such as the development of messaging to support Mifid 2 and the inclusion of Six (formerly Six Swiss Exchange) as a partner in the consortium that will put us in a good position to enter Europe in a very unique way. Private banks are struggling with their structured products, not only because of new regulatory requirements and guidelines, and we can provide answers and help those firms to navigate the market and comply with upcoming regulations.
Mifid 2 is a big deal for the structured products industry and has brought the technology platforms to the forefront for the issuers. Regulations, in general, have put immense pressure on issuers to not only price or get quotes on products, but to provide timely reports on those transactions. High speed trade booking and reporting are the driving forces for technology adoption at this point.
Structured and OTC products providers will be needed to show a trail of transactions and the only
“The European Market Infrastructure Regulation (Emir) has made it uneconomical to trade some derivatives, and pushed some institutional investors, such as insurers, to using the platform as an alternative to trading interest rate derivatives.”Omar Waly, Director of structuring at Credit Suisse Argentum.
way to capture this in an efficient and transparent way is through the use of technology. This is not about execution, but about booking and post-trade services, which is going to drive most of the activity in this segment over the next 12 months. Product providers have been left no choice, and this will provide new opportunities to firms with a strong electronic capabilities.
Director of sales, private investor products
at UnicreditOnemarkets tracks the entire process, and the product profile is generated automatically for the investor. We take into consideration the automatic email, with the Kids and so on, completely integrated into the entire process. Since 2012, we have proven that our process works from a regulatory standpoint. To be fully compliant and provide the tools to educate investors was a main consideration when developing the platform, as, if you are not fully compliant, you cannot do business. The platform also provides educational videos, talking investors through the investment process and showing different scenarios and how products react to market events.
There are two forces that push digitalisation. One is costs and the other is regulatory pressure. Just think that, from the New Year on, you have had to create all those Kids. You have to have a platform; you have to automate it. Otherwise, you have to outsource it, but then you pay a lot of money for that. Or you have
to make a huge investment in your infrastructure. There is regulatory pressure as well as cost pressure, because the client wants more; he wants more tailormade, more diversity, more trade and so on. It is unrealistic to expect the market in Germany to maintain 1.5 million products with an interest ratio of 15% to 20%. It is unrealistic and not economic.
The pressures of cost and regulation will continue. This could open up opportunities, but it will not be easy for a company from outside Europe to enter the region’s platforms and make an impact. This is not only about the infrastructure and tools you can provide, but about the target market and the products you offer to attract those potential clients.
Head of structured products, RFQ platforms at ITG RFQ-Hub
One hundred percent of the corporate bonds and exchange-traded fund market will be transacted via platforms and structured products will follow suit. Mifid 2 is going to reshape the market and is making platforms very relevant for the structured products market and Mifid, but also non-Mifid companies.
Platforms are responding to the new requirements that European players will have to comply with under Mifid 2. Because of that perception, clients will expect platforms to provide improved traceability, with the ability to support transparency and communication requirements (email, chats and phone calls), and best execution (the ability to proof in the audit trail). The second consideration is that European clients are looking for a centralised system to keep all the required documentation for their transactions, and platforms can streamline this process.
President at Transparitrade
Pricing and trading functionality are core requirements, however, there is an increasing demand for more peripheral functions, including workflow management, legal document automation, trade data reporting (for regulatory reasons), post-trade analytics and product performance reviews. We do not believe it is enough to simply provide pricing and trading capabilities in isolation, a successful
platform needs to become a one-stop solution for all trading, reporting and product review activity to become a viable alternative for buy- and sell-side market participants.
With regulations, such as Priips and Mifid 2, it has become very clear that the only way to properly manage the documentation, data processing and regulatory reporting requirements that result from such pieces of regulation is to move to a platformbased architecture. An effective electronic platform will need to provide users with the ability to run know-your-client checks, automate all legal trade documentation, database and archive all traderelated data and distribute that documentation and data as required by certain regulations. A successful platform will need to deliver both a commercial and regulatory solution in parallel.
Regulation puts additional requirements on the product set and, in general, has slowed the adoption of many products in the US over the past two years as companies have been distracted with implementing new regulatory processes. But, overall, regulation will increase the use and need for these platforms, as they facilitate broker-dealers to effectively offer the product set. It has become more important for broker-dealers to have more automated education, testing, price comparison, trade execution, tracking of compliance processes and wholesale support for this type of product.
Price transparency has improved, but, with many single issuer programmes, it is not as facilitated for users as they have to visit multiple applications for different issuers and then compare off system. This is also true with best execution. Multi-issuer platforms make this process more objective and enable companies and advisors to ensure they have the best products for their end clients.
DAVID WOOD
Head of electronic business equity, derivatives and cross asset at Societe Generale
Different people have different needs. It will be interesting to see how this evolves on the back of the current regulatory environment around
best execution, quality of execution. The new requirements put a stronger emphasis on people being able to prove what they essentially already do. Best execution and reporting are the easy parts around Mifid compliance, but there are a number of provisions around documentation, jurisdictions (countries of distribution), languages… all those things create a more complex environment around regulatory compliance for issuers and clients.
These people do not need to check five different platforms to see where the market is, because they are pretty tuned in, and they know, for the type of product they are looking for, the variations, the language, but they are under an obligation to do best execution. There is a general simplification of what best execution means. Best execution does not mean best price, and, although pricing is an important element in many areas of a product, it is not the only element to take into account.
Global head of equity derivatives sales at BBVA
Automating execution requires a more complex technical approach, as there are a number of Mifid 2 provisions to comply with. We have addressed that issue by generating a code that clients can use to call us and confirm the trade after a few checks. This kind of platform is not only helping to streamline the pricing and trading process for issuers and investors, but it is also addressing a number of requirements from upcoming regulation around transparency and best practice.
Single issuer platforms can address the new reporting requirements as well as post-trade documentation. Best execution is a more complex requirement and can only be achieved if a client checks the pricing on three different single-issuer or via a multi-issuer platform.
Global head of front-office derivatives products at Bloomberg
Bloomberg developed a full suite of regulatory solutions for derivatives and structured products to help clients meet Mifid 2 requirements around sales trader workflow, pre- and post-trade transparency, Isin generation, transaction reporting, best execution and record keeping.
New product development is not always triggered by a new set of regulatory obligations. Over the last few years, we have built a new product called the Derivatives Library, which gives investors the power to create and price bespoke structured products in an easier and more automated way. Anticipating the increasing need for more automation and compliance, the technology allows all our regulatory solutions to seamlessly work once the structured product is created in minutes.
Another example of a new regulatory regime is Priips. We have also enhanced our solutions to help clients adhere to this regulation for existing products as well as new ones created on the fly with our technology. Building pre- and post-trade systems for structured products can be a costly and timeconsuming venture, especially when multiple vendor solutions and data suppliers require implementation and integration support. Clients work with us not only because our technology supports their workflow and helps them comply with evolving regulatory guidelines, but also because we deliver a comprehensive and holistic solution that reduces the total cost of ownership that includes data, technology, analytics, integration services, software and hardware upgrades, and ongoing maintenance.
Co-founder and president at Halo investing
As long as their mission is true to the cause, platforms can help in a number of areas beyond driving volumes and profits. Generally, advisers understand how structured notes work, but they can now see how these products work in the context of a portfolio and the risk the client is taking.
New best execution requirements around structured products has benefitted us, because we can provide that and show the regulators that the industry is also committed to address any issues around transparency and suitability.
Head of platform solutions at Vontobel
Platforms will be important for helping issuers and manufacturers to comply with new regulation.
Deritrade, for instance, is fully Mifid 2 compliant and this is something market players need to do when defining the target market, and when establishing the suitability of a product around a particular risk profile and reporting.
Director of structuring at Credit Suisse Argentum
The European Market Infrastructure Regulation has made it uneconomical to trade some derivatives, and pushed some institutional investors, such as insurers, to using the platform as an alternative to trading interest rate derivatives. Platforms can sometimes make regulatory compliance more economically efficient for users.
Chief strategy officer at Numerix
With the Kids and other similar initiatives, there is a minimum standard for transparency, which is already quite good. The Kid helps to understand the risk characteristics of the product, the payoff profile of the product,
without getting into all the complexity. So, the minimum standards in terms of education and transparency are much higher now. Of course, there are institutions which are going beyond that, by creating interactive tools, the ability to construct products and simulate how your product is going to respond to certain market scenarios or stressed events.
When we were working on the platform set up with a tier 1 bank with good processes, an internal audit in light of new regulations around best execution concluded that it needed to evidence those processes. So, effectively, the bank commissioned us to build a platform that could keep a record of trading activity and all the other trail that comes with it. The way they were trading, every trade was like 50 emails, it was insane. With all the new regulation, such as Mifid 2, private banks are coming around to the fact that they need to have better systems and better visibility, transparency and auditing.
www.structuredretailproducts.com
In the most extensive research into the development of structured products issuer trading platforms, SRP contacted 22 providers, both technology companies and banks, of which 15 were multi-dealer platforms and seven single-dealer. These companies were questioned on 20 competencies about the technological functionalities required to provide structured products to the buyside. The results of this survey are included in the tables that appear in Chapter 2: The Management Summary.
These companies were surveyed during December 2017, at the same time as SRP conducted a separate survey of 55 senior buyside respondents, all of which are users of at least one of the dealer platforms profiled in Chapter 5. The questions to the buyside were aimed at gaining their user experience and their preferences for features as well as their desired platform suppliers, and are analysed in Chapter 3.
The more extensive sellside questions were directed to the following companies:
AG Delta (Dealstation)
Bloomberg
ITG-RFQ Hub
Numerix
OTCx
Commerzbank (Primegate)
Contineo
FinIQ
Goldman Sachs (Simon)
Halo Capital
Leonteq (Constructor)
Navian Capital (Atlas)
TPT/Wallstreetdocs
Vontobel (Deritrade)
Barclays (Comet/Barx)
BNP Paribas (Smart Derivatives)
Citi
Commerzbank (Cyclops)
Deutsche Bank (Autobahn)
Credit Suisse (Mysolutions)
HSBC
JP Morgan (Nexus)
Julius Baer (Derivatives Toolbox)
Societe Generale (SG Markets)
Unicredit (Onemarkets)
UBS (Equity Investor
Morgan Stanley
The sellside were questioned on the following competencies:
How many underlyings are covered (in the Americas, Asia and Europe)?
Error rate (as a percentage)
Does the platform offer straight-through processing?
Number of payoffs available
Minimum and maximum ticket sizes
Is educational material available, and in what form?
Is the platform accessible via a mobile device or an app?
Is automated lifecycle notification included?
How long are quotations held?
Are product recommendations included?
What liquidity and secondary trading is offered?
What post-trade services are provided?
How long does trade execution take?
How many touchpoints would a US$150,000 uncapped call on the S&P 500 require?
Is research included?
Is news offered?
How is the security of transactions assured?
How many clients do you have?
Number of countries in which the platform is available.
What features do the platforms plan to add in the next 12 months?