P&L Report Card
With the words “MiFID II” ringing in our years we have to say that, yet again, last year was not a great one for innovation. We are sure that some great ideas exist – it’s just that the budget wasn’t available to make them a reality.
Another factor in the slow down in innovation we have observed over the past few years is the maturity of the single dealer platform industry, when so many are full service, where do you go? Throw in the fear factor that still permeates the FX banking world and you still have people coming up with ideas, thankfully, but executing them is a difficult and arduous task – thanks mainly to “Dr No”, or the compliance teams as they are otherwise known.
So the innovation that does exist, does so around the edges – after all, how innovative can you be when wanting to integrate into a client’s workflow, which is one of the buzz phrases of this year? The workflow already exists.
Some interesting stuff from the past year includes Citi’s mind maps on its research offering – as long term proponents of visualisation we like the ease with which users can prioritise, or not, stories and themes – as well as BNP’s innovative use of its own internal TCA data to reinforce third party analysis.
On a broader structural note, Natwest Markets has created a segmented desk for managing customer orders. In many ways this reflects the move made a couple of years ago by Bank of America Merrill Lynch and BNP Paribas to have their agency execution teams manage client orders – thus separating them from the voice and e-trading desks, but in the era of the Global Code it represents a good example of banks going the extra yard to ensure there is minimal chance of misconduct around customer orders.
Morgan Stanley’s creating of an internal “dark” CLOB for clients is also interesting – the bank analyses client flow and then seeks to create these mini, internal markets to enhance the client’s chance of an internal match, thus minimising the all important market impact.
On a related theme we liked Deutsche Bank’s Maestro and its quasi multi-dealer platform for executing share class hedging trades.
Elsewhere, and often overlooked by us outside of the structured products award, UBS continues to develop some really interesting functionality allowing clients to build their own baskets of investments and then have them presented in a structured note – JP Morgan also rolled out some interesting basket trading functionality last year, as did Deutsche Bank with its custom indices analytics.
Most of the new work was, as noted, in the algo space and it is difficult to stand out in such an environment, however if there is one area of the industry that could do with a kick start it is algos, and we think our winners are leading the effort.
Winner – JP Morgan
This will be a fairly brief write up because our winner has already had extensive coverage for its work in this field. In the simplest terms, JP Morgan wins our Innovation Award for its Algo Central product – functionality that takes the most crucial part of the dealing process, execution, and makes it informed, controlled and flexible.
The key differentiator for us is the flexibility, specifically the ability to take a “parent” order and break it down across strategies – and then empower the user with great oversight of market conditions and algo performance in each strategy, simultaneously, in one window.
There has been much scratching of heads in the FX industry at the slower than expected adoption of algos and while partly it can be explained by clients not wanting to assume market risk and/or pay explicitly for execution, we believe it is about control and flexibility. Put simply, clients are too different to be able to adopt a single model – some want click and go, others want to be able to nuance the order before submission, yet more want to interact with the order while it is in operation. JP Morgan’s Algo Central delivers on all counts.
We noted in our write up for Best Execution that JP Morgan has raised the benchmark in that field, well it has done so through the rollout of an innovative solution that remains simple on the outside, but has tremendous complexity under the hood. It is not easy to deliver a complete algo package, but the bank has achieved it.
Over the years this award has been granted to products that have changed life around the edge of the trade cycle, it is good to be able to bring it back to the core function of markets and highlight how one bank has created an innovative solution to not only advance the cause of algo execution, but, more importantly, to make clients’ lives just that little bit less stressful