Broker-dealers’ ecommerce solutions are entering a new stage of development as they battle to secure business from institutional clients demanding more sophisticated solutions, according to research from consultancy GreySpark Partners.
The initial wave of single-dealer platforms launched in the post-crisis era are often cumbersome, narrow in scope and too numerous. On top of this, many were launched at a time when trading volumes rapidly declined and, as such, are operating over capacity. As a result, GreySpark expects consolidation in the coming years.
“With increasing costs and collapsing margins, it is no longer possible for investment banks, bar a handful of ‘flow monsters’, to compete in every segment of the market,” said Frederic Ponzo, managing partner at GreySpark.
New solutions will not only need to bring asset classes together but will also need to be ready to adapt to new market structures, with increasing numbers of assets moving to electronic platforms.
One bank that recently unveiled its next generation platform is UBS, which launched UBS Neo two weeks ago. The firm said the technology was developed in response to the changing needs of clients.
“Many of the clients we interviewed in the early stages of development are reorganising by function rather than product,” said Hisham Caramanli, global head of securities ecommerce at UBS. “This means they’re dealing across asset classes and need a platform that can bring them together in a way that’s simple to use.”
However, the cross asset approach is unlikely to work for everyone, Ponzo said, with many asset classes currently over-served by electronic platforms, some banks are choose to specialise.
“Since there can only be three players standing on the steps of the winners’ podium for a given asset class, all but a handful of flow monster banks are forced to focus their capital allocation on areas where they have a tangible competitive advantage,” he explains.
GreySpark’s research notes that several investment banks have exited or significantly reduced their presence in equities, which it sees as having most over-capacity. Some sell-side firms are also reducing their fixed income business due to pressures in that market from increased capital charges applied to non-cleared OTC trades and aging bond inventories.
While technology has come to dominate trading, those banks that are able to leverage their software to facilitate their client relationships will gain the most, GreySpark said.
Caramanli agrees: “We want to use Neo to enhance our client relationships by providing them with relevant information and content from our people and help them connect.”
Within UBS Neo, clients can search for information by theme, company or analyst, viewing all relevant research by an individual or multiple individuals. It then gives the option to directly connect to them via the phone or email.
UBS believes it will add value to clients by providing a wealth of information in a single place with the ability to search and filter so clients can easily access only what is relevant to them.
Building new systems from the ground up is also likely to differentiate the winners and losers in the new generation of single-dealer platforms.
When creating Neo, Caramanli said a ‘new on new’ approach was central, where the new front-end was created alongside a new underlying model, instead of simply amalgamating its many legacy systems in a single portal.
Ponzo said the old approach of putting a new wrapper on existing products is unhelpful for the buy-side and the next generation will not win clients by using this same approach.
“With very few exceptions, single-dealer and investment banking etrading platforms were build by adding user interfaces on top of existing business models”, he said. “Those platforms are typically aligned with a given product or silo, and clients are forced to learn how to work the systems.”