Delivering a more compelling user-centric experience with next generation SDP’s

Single Dealer Platforms are being re-engineered to position clients at the centre of a simpler, more precise and integrated cross-asset class trading environment. Frances Faulds talks to some of those behind these next generation systems.

First Published: e-Forex Magazine 60 / FX e-Commerce and Platforms / April 2015

Delivering a more compelling user-centric experience with next generation SDP’s

The changing regulatory landscape has, by default, put the single dealer platform under the spotlight. At the same time, institutional and corporate users are becoming more specific in what they expect and demand from their banks. Whether it is providing streaming prices, mobile alerts or connection to new trading facilities, in order to re-engineer their platforms banks have to perform a balancing act between regulatory changes and an improved user experience. 

Stamos Fokianos, Global Head of eBusiness for the Global Markets Division at Crédit Agricole Corporate and Investment Bank (CIB), believes that the way clients trade FX is shaping the way the bank is re-engineering its single dealer platform. He says that there is a clear tendency for certain clients to trade more ‘holistically’, across more than one asset class at any given time. A classic example of this is how FX is automatically hedged in a cross-border securities transaction. For this reason, Crédit Agricole CIB has started to phase-in a number of additional functionalities to its SDP, JetStream, Crédit Agricole CIB’s Foreign Exchange trading platform, which offers fast, real-time streaming prices to all Crédit Agricole Corporate and Investment Bank’s clients. 

He believes JetStream represents a step forward in the provision of electronic FX trading services and how they are designed. Offering pricing in more than 100 currency pairs, with large auto-quote amounts available, JetStream is easy to install, user-configurable, and can come with order management and execution tools

Regulatory uncertainty

But for Fokianos a degree of uncertainty comes with the significant regulatory change at present and this is holding up any major developments in this space. While market participants are actively assessing the European and US trading models (Multi-lateral Trading Facilities (MTFs), Organised Trading Facilities (OTFs), Swap Execution Facilities (SEFs), etc.) it is very difficult for new development to take place in single dealer platforms, as certain products and types of trading may not be legal in the future. Equally, it is very difficult for multi dealer platforms to develop their offerings further, again because they need to see a final and clear state of regulations and how these regulations are compatible, or not, across different jurisdictions.

However, the industry has been thinking about ways to apply new regulatory rules within an SDP, and using a combination of principal and agency trading is emerging as a way of doing that. “Nevertheless, it is difficult to make progress in any direction without waiting for the rules and regulations to settle down and until they are applied equally globally, otherwise you end up with different versions of the same product, or complex administrative set-ups. Yet all banks use some sort of agent and principal combination model, irrespective of single or multi-dealer platforms, whether they wish to handle risk in their core competencies or just offer a service for client requests that do not wish to manage the risk on their own,” he adds.

Competitive benefits

On a positive note, Fokianos point out that regulatory reform has created a more level-playing field, primarily due to clearing and increased visibility of price information. He believes this will lead to increased competition and ultimately this will benefit clients. He says: “Price differentiation, in an environment where credit risk is not an element anymore, might gradually become redundant except for the fact that competition might actually move downstream. In a scenario whereby a client has the ability to clear in more than one CCP, a dealer will need to be able to calculate their collateral availability with each requested CCP and potentially show different pricing based on where the trade will clear. In summary, it may be that the biggest differentiating factor in terms of pricing might not be which SEF is dealt into, although different SEFs have different brokerage charges, but where it actually clears.” 

In the medium to long-term Crédit Agricole CIB plans to develop its JetStream SDP further but Fokianos stipulates that what is important right now, is the finalisation of the regulatory framework so that it is established which trading venues are eligible for which types of trades. This, he says, will free up further investment across the industry.

Stamos Fokianos“Price differentiation, in an environment where credit risk is not an element anymore, might gradually become redundant except for the fact that competition might actually move downstream.”

Stamos Fokianos

“Price differentiation, in an environment where credit risk is not an element anymore, might gradually become redundant except for the fact that competition might actually move downstream.”

Unique one-stop offering

Serving Nordic companies with subsidiaries or sales in the UK and international companies with business in the Nordic and Baltic Sea region, Nordea offers a full range of cash management services as well as funding and trade finance facilities designed for individual customer needs. Its advanced electronic banking services enable customers to handle their domestic and international accounts and cash management most effectively.

Thomas Vinding, senior director, head of e-Markets, at Nordea says that today Nordea’s SDP is predominantly used by the bank’s SMEs/mid tiered corporate customers for hedging of their commercial flow. He says: “Throughout the past few years we have leveraged this platform towards our customer base, being the biggest in the Nordics when compared to our peers. From the inception we have always believed in going proprietary on our SDP in order to secure a unique offering and to ensure that we will be able to serve our customers with a one-stop-shop approach.”

Vinding says that Nordea will continue to build on its proprietary strategy going forward and continue to enrich the customer experience to cater for the growing demand across different devices – mobile and tablet alongside the traditional desktop offering.  He adds: “We will also focus, to a greater degree, on the customers’ end-to-end workflows, pre- and post trade. While the execution leg is, of course, still the heart of an SDP platform, and that we will expand to cover the customer’s needs more broadly on the product palette, but the difference will be in the way we will offer it. Previously we, and other banks, came from a strong product and execution angle but going forward we will present our offerings much closer to the customers’ workflows and from their perspective.”

A new generation of platforms is making it easier for clients to engage and collaborate with the banks and access the full range of real-time market intelligence and trade execution capabilities they offer. Vinding believes market intelligence is king and the different retail platforms outside banking has already shown this. He says: “I believe that our customers expect us to leverage the information we already have across all our customers and then utilise it, in an anonymous and aggregated way, to enable them to make better informed choices in their trading and hedging strategies.”

While there is a growing demand for better analytics at trade execution Vinding says that in the Nordic region the need for advice is more oriented on how to make efficient trading decisions within the multi-dealer space, in the light of the scarce Scandinavian liquidity and hence the greater focus on minimising market impact on order execution. While the look and feel of the SDP is less important here, scant liquidity makes customers very reliant on the bank.

Nordea e-Markets

Nordea e-Markets

Further development will be fully customer-centric as Nordea uses mobile and digital technology to create superior solutions that collaborate more closely with customers and attempt to match the customer’s workflows more closely.

Extracting more productivity

Providing the SDP framework for banks through the Caplin Platform, Caplin Systems specialises in providing the e-commerce delivery layer that spans multiple electronic trading and information systems to provide online trading and decision support direct to banking clients. 

John Ashworth, CEO of Caplin Systems, says that banks today have two main concerns. Firstly, the need to respond to changes imposed by regulators.  Secondly, the need to maintain and grow their customer franchises whilst extracting even more efficiency from sales channels. Both these factors have huge consequences for technology and management resources decisions.

Although FX has been strong the last couple of quarters, revenue from their traditional business lines is down. As a result, Ashworth says, banks are being forced to look to outsourcing and they are desperate to extract more productivity from their internal sales functions. He says: “They are getting smarter about figuring out who their profitable and non-profitable customers are and as in any industry they are looking at e-commerce to increase profitability by generating new customers and simply reducing the cost of sales.”

Thomas Vinding“Previously we, and other banks, came from a strong product and execution angle but going forward we will present our offerings much closer to the customers’ workflows…”

Thomas Vinding

“Previously we, and other banks, came from a strong product and execution angle but going forward we will present our offerings much closer to the customers’ workflows…”

For this reason, Ashworth says it is a back-to-basics approach; banks are not looking re-invent the wheel with elaborate internal infrastructure and Caplin is focusing on the provision of the piping -- the APIs, data streaming and distribution – into black boxes and producing pre-built solutions for the different workflows within FX e-commerce, that can then be customised. “We have invested heavily in making the standard products much easier to adopt and install, but crucially, also easier to configure and customise at the same time,” he adds.

Alongside this is the fast growing adoption of mobile technology, especially in Asia. Ashworth says: “Even just a year ago, people were questioning whether or not trade execution was appropriate on a mobile or a tablet, but we don’t really hear that question any more.” While there may still be regulatory and compliance concerns about execution on mobile devices, Ashworth says there is certainly good case for looking at research and watch lists on them, as well as amending orders and receiving alerts so Caplin is also capitalising on this by making all its interface technology platform-independent in the light of the greater demand banks are getting from their customers for electronic communication.

John Ashworth“...paradoxically, it may well be that the single dealer platforms become the gateway for the SEFs,”

John Ashworth

“...paradoxically, it may well be that the single dealer platforms become the gateway for the SEFs,”

Making e-commerce profitable

Ashworth says: “It is a twin objective; on the one hand banks want more profitable business, and more business, and on the other hand, they want to reduce the cost of servicing their business so they are trying to make the end customer more self-sufficient. This means easy to navigate screens and easier workflow, as well as post-trade processes, allocations and dealing with block trades. We are seeing demand from the banks who want to give their end user simpler workflows and a better user experience.”

Despite the fact that Caplin Systems is supplying cross-asset class architecture and technology, Ashworth believes there is still some way to before most banks are fully cross-asset class because they have been organised in product silos for so long and even with a cross-product e-commerce architecture team, it is always the silo management that tends to dominate. “The best you can hope for, from most banks, is that the look and feel, and the branding, will be identical across the different asset classes and this is as good a way to start in terms of cross-asset class integration,” he adds.

 

Single dealer platforms are being hit from all sides, it seems, but Ashworth is in no doubt that they still have a central role to play. With the requirements to show best execution having already driven some customers to the multi-dealer platforms, the new regulatory landscape unfolding in terms of the need for some products to be moved from the banks’ single dealer platforms to Swap Execution Facilities (SEFs) is now taking effect.

Ashworth believes that in many cases banks are able to post mid-rates on a screen and attach an audit trail to what has been discussed in order to demonstrate best execution was given, and in terms of the new SEF environment, he believes the single dealer platform will start to provide SEF aggregation and smart order routing for SEF execution, thus becoming a shop front for SEF deals. “Just because products are being traded over the SEF, it doesn’t mean banks won’t want to retain some sort of footprint and relationship with the customer, so, paradoxically, it may well be that the single dealer platforms become the gateway for the SEFs,” he says. 

In many ways, SEFs and the new regulatory requirements will simply shape, not eradicate, the next-generation SDP and with the debate over whether multi-bank or single bank platforms would win out having gone away, banks are now focusing on next generation platforms, built for the unfolding regulatory landscape.