Much of what we want to say about NatWest Markets has been written in the Best Prime Brokerage Award, so here we will focus on one other aspect of the bank’s service – order management.
Orders have long been a strong suit of NatWest, including under its former guise of RBS, starting with basic order books early in the century, through what was the first Gamma trading tool on a single dealer platform, to the segregated order desk launched three years ago. We should stress that the Gamma trading ladder remains tremendously popular amongst clients, but it is moves on the segregated order desk that have intrigued us.
The bank has expanded its technology solution to handle all orders, not just algo types, so the same technology is applied to limit orders and stop-losses. By having a segregated desk, NatWest is able to build a curated pool of liquidity – effectively any client order gets the benefit of internal as well as external liquidity pools because there is no question of the information being used, or the order being “triggered”. There is nothing in it for the desk either, which means the whole process, which remains one of the bigger friction points in the bank-client relationship, is much cleaner.
We actually think that more banks will go this route for over the past year especially we have heard repeatedly that some banks are starting to refuse to handle client orders because, frankly, they are more trouble than they are worth. If the market runs away, the client gets an awful fill and the bank is criticised, if the market pops through a stop and rebounds, the bank gets criticised for executing the order. It is, and always has been, a lose-lose situation, but a segregated desk, like that built at NatWest Markets, solves that problem. If the client has an issue with the execution, they can complain all they like, but they will also know that the bank made no money out of the trade.
On that point, what NatWest has effectively done is built a managed OMS for clients of the segregated desk, and that costs money. Order management is, when all is said and done, an agency offering, so why are clients not paying for the management of these stop-losses and take- profits? Back in the day the bank could use such orders as protection for their own positions or as entries into new positions, but that is now frowned upon, therefore is it time for banks to look to recoup the not inconsiderable expense of building an OMS as NatWest has, by charging clients? It is not as if the independent TCA services don’t exist to validate the order execution.
Award for e-FX Excellence