P&L Report Card
Whilst we seem to be in the midst of a shift on the buy side to multi-asset class execution desks, it’s probably too early to say whether this represents a short term trend on the part of managers desperate to trim costs, or the start of a bright new future. It is easy to say the latter, but as firms continue to find out (and, we are amazed to say, are surprised by) the very different market structures involved, it becomes a little harder from a technology standpoint, if not human resources.
This represents something of a challenge for banks seeking to match this shift in customer thinking and while there is one exception to the rule, the only serious moves so far have been to put the more liquid fixed income products on the same technology stack (and GUI) as FX. As an example, US Treasuries have been on Citi’s Velocity and JP Morgan’s Execute for some time now, as have futures in the case of Citi and commodities in the case of JPM. Equities still seems a stretch too far, and there have to be questions over whether it is worth the resource outlay to bring a pure agency product into a predominantly principal offering.
Elsewhere, Goldman Sachs and BNP Paribas offer a strong platform in commodities especially, but that really is about it. Last year we questioned in this report whether the banks collectively, were serious about wanting to expand their product set, in spite of the advantages to the client of having multiple products delivered through one main connection. It has to be said, as far as what we have been shown and been told by users is concerned, that remains a valid question, because competition across a broad range of products remains thin on the ground.
Some banks are still racing to fill important gaps in their FX offering, others continue to plough the field that is parallel business lines (and technology stacks), and others are targeting specific, and often historic, product strengths for their investment dollars. Nowhere do we really see a broad-based push to develop a one- stop shop to rival UBS’ Neo for example.
This is not to say banks are not extending beyond FX, however. The development cycle, such as it is, appears to be following the business model as banks are building e-FICC platforms, rather than a true multi-asset class offering. One of the challenges for those banks seeking to build a true multi-asset class platform is that regulators globally don’t really seem keen on the idea of bilateral trading in many asset classes, or at least that is the impression most often given. This means that building such an offering has complications, not least providing agency services in one asset class and principle-based services in another. It is this complexity that suggests to us that the next moves will be made in the algo space, but even here there will be challenges.
It is fair to say that, generally speaking, algo strategies adapted from the equities world have not worked in FX – at least not without a lot of work, so much in fact that they end up as totally different offerings. This has left a lot of banks with two algo product suites, most often on two different technology stacks. The interesting move over the next year will be what suite is deployed in fixed income markets – will the first generation be from the FX or equities world and, more importantly, will it succeed or will a third line of algo products need to be developed? It could be significant that in commodities, the main players have rolled out bespoke algo strategies but that these have been overlaid onto a standard GUI that is integrated into the FX platform.
The likelihood of fixed income becoming the next battleground was mentioned in the introduction to these awards and if that is indeed the case, then JP Morgan has managed to grab a head start, for the Rates offering on eXecute is superb. The UX when it comes to Rates products on most screens has always been a tough experience, there are just so many the screen always ends up looking too “busy” and it is hard to follow markets. The smart use of colours and the HTML5 stack make Rates on eXecute a comfortable – and for FX users a recognisable – experience.
JPM is a repeat winner of the commodities award and it continues to build its already impressive product set in this segment, adding diary strips and commodity indices to the desktop for example, and hosting a series of existing products and services, such as fixing and timed orders, on mobile. Again, being on the new platform means the UX is so much better for commodities users.
Interestingly, as part of its options roll out, JPM is adding Islamic forwards to eXecute, as well as dual currency securitised notes. Already in advanced development are initiatives in credit and repo markets as the bank continues to build the e-FICC model out.
Before closing out this section, we should note the progress at Nomura, our One to Watch in last year’s awards. As is often the case with this award, we have been over- ambitious with our 12-month timeframe and the bank remains on track to deliver a platform spanning Rates and FX, but at the moment has not done so. What has been achieved is connectivity to a group of third party platforms so the bank can roll out its highly praised algo suite, as well as the continuation of its work with Brevan Howard in Rates, something the bank is looking to push into the FX space. This cross-asset class approach could help propel Nomura back into the top echelon of providers, but to get there the sense is it really needs to get the single dealer platform up and running to deliver richer analytics to clients.
Overall it has to be noted, however, that the jury remains out on whether a true multi-asset class single dealer platform is a requirement or merely unnecessary complexity and one other factor will play a role as this issue plays out – the evolution of desktop technology. We have already noted the desire on the part of some players to unbundle their single dealer platform, well the latest desktop technology will allow users to mix and match even more efficiently than they used to – the days of an SDP making a client “sticky” may be over, what we will see now is individual or small groups of apps or tiles becoming sticky, rather than the platform as a whole. We would reiterate, however, that it is still better to be in the unbundling position than it is having to build multiple different products which can then be deployed.
All of which leads us to our winner…
Winner – UBS
It is probably a valid question to ask, will we ever see the likes of Neo again? Even now, the bank is in the midst of a full pivot to HTML5, which is crucial to its efforts to scale the platform and maintain technical agility.
The easy answer, given our thoughts in the Report Card, would be ‘no’, it is hard to see in such a fluid environment as financial markets represent, how such a huge scale investment in one project could pay off. Indeed, we see UBS’s efforts to unbundle elements of Neo as critical if it is to continue its growth trajectory. The private/wealth clients were the big addition to the platform that justified all the work, the sense now is that the bank needs to unbundle to enable it to compete in specific fields – FX being one of them.
Something we hear from competitors in the FX space is “we don’t see Neo on desks”. This may be a fair observation, but it at once misses the point of what remains one of the more ambitious projects undertaken over the past decade in the banking industry – it was squarely aimed at a pretty unique client base – as well as the fact that in the new world what will be seen on desks is a mish-mash of different platforms and services. Neo could at the same time represent the pinnacle and the end of the one-stop shop single dealer platform.
If it is indeed a pinnacle, then it is one with pretty spectacular views, for Neo remains a triumph in terms of the breadth of product supported as well as in the depth of content provided – it is hard to think of an aspect of financial markets that is not supported on the platform, from the smallest stock to the largest FX transaction, Neo provides the tools for analysis, decision making, trading and, of course, the post- trade reporting and management.
This is the seventh year in succession that UBS has won this award, which is testament to the original vision and build; all that has really happened over the intervening years – the HTML5 pivot aside – is the bank has added products to it. That is also the case this year, although as mentioned, the pivot is gathering steam. A much-improved FX options experience is probably the headline addition this year, although, as always, the actively managed certificates (AMCs) in the structured products area remain a stand out and have undergone another innovative evolution.
What UBS has done really well – and it is best highlighted in the linear options products – is integrate the idea generation process into trading, a real workflow enhancement. Clients can run an idea through UBS’ analytics, the bank’s systems analyse the suggested trade according to the desired outcomes input by the user, and displays suggested variations. The original idea from the client can be anything from the most complex with multiple triggers and targets, to the simple “bullish EUR”, but the platform will generate multiple trade scenarios for the client to consider.
As noted, clients can establish trigger parameters for the option strategy to be executed, that quasi order book model also works on the way out. A client can upload existing strategies and Neo analytics will analyse how it is performing. If conditions exist where the strategy has hit an optimal point, or if the client enters a parameter at which they are comfortable to either exercise/sell back the option, the system manages that process as well – as it does if the client will benefit from a restructuring of the trade.
Other initiatives on Neo over the past year include further enhancements to its Live Desk content delivery, which has been streamlined to make it faster paced with a better, cleaner look into the ideas generated from the bank’s trading floors.
Also enhanced has been the product range supported by the Rates module, the bank’s work on its pricing engine in FX has also paid off in better pricing and reduced latency in fixed income, it has also rolled out more algos to the Rates space, which sits nicely alongside BondPort, UBS’ aggregation platform for clients. This is a pure matched principle model using the bank’s smart order router (SOR) logic, which is open for 22 hours a day and covers something in excess of 30,000 bonds across 18 currencies. More trading strategies have been added and the bank reports huge percentage increase in both trade count and volume, with average trade sizes also rising.
Something that acts as an umbrella for all the products on Neo is UBS’ always excellent AMC offering, which effectively allows a client to invest in any product they like from the thousands available as part of a basket. They can also establish a targeted return and let UBS’ algos work out the best basket for them. The client sets the benchmark and a dynamic rebalancing algo creates strategies of its own and invests on the client’s behalf using equities, bonds, commodities and, yes, foreign exchange products.
he past year has seen Neo provide the ability for clients to create and manage a portfolio of dynamic strategies and the bank is about to test a very innovative settlement method for these products involving a Distributed Ledger – more on that to follow.
Other work has seen a huge improvement in the bank’s mobile offering, thanks to the HTML5 development process, as well as efforts to increase personalisation. Neo also remains the perfect staging post for UBS’ excellent Knowledge Network, which supports the efforts of its Data Solutions team, as does its Evidence Lab.
Last, but very much not least, in that perennial strength of UBS, post-trade, the bank is now at the stage where it is truly an exception-based process and much of the work of its teams is now about pre-empting client issues before they even arise. This is done through what the bank terms its “hybrid pod” concept, which brings together skill sets from different parts of the business – a SWAT team for post-trade if you like – that conducts a war on touches. This concept seeks to improve collaboration across the different teams at the bank to problem solve more efficiently.
In an admittedly more mundane matter, UBS has also, in the post-trade space, managed to pull a lot of documentation online, thus reducing the huge amount of paper work that flows between clients, brokers and banks and saving the rain forest at the same time! It is hard to under- state how seriously UBS takes processing efficiency – we have said this before but it remains appropriate, the bank takes an approach to this issue that would make the world’s biggest production line proud.
Inevitably, given the scale of the platform, the pace of product development has slowed down on Neo as more work is done behind the scenes – it is hard to really decipher the work of a machine learning algorithm for example, but it remains a visually rich experience, one that the bank has made even smoother to move around. The strength of the platform remains its design and the scale of content and product delivery mechanisms it can support and it is, quite honestly, difficult to see another platform coming close to its breadth in the coming years.
That may happen of course, it wouldn’t be the first time we have had a prediction go wrong, but for now, UBS’ Neo offers the best multi-asset class experience going, and as the HTML5 shift finalises, it is hard to see how that will change.
UBS Awards for e-FX Excellence