P&L Report Card

For a few years now, there has been a sense that regulatory reform – not least in the capital adequacy space, had destroyed the dream of the banks to build a world-class multi-asset, single-dealer platform. With trading being pushed towards regulated entities and banks reluctant to allocate more capital to underperforming businesses, first commodities, then credit and finally fixed income markets seemed likely to drift away from the SDP world.

It is notable that in the commodity space there remains genuine competition – and we ought to stress that by commodities we do not mean precious metals – but in rates and credit it is much thinner on the ground. At the very least, where banks had developed separate technology frameworks for some of these markets they continued to host on those frameworks, rather than spend serious (and scarce) technology resources in integrating with an FX platform.

Of course, it could be argued that in a componentised world, the need for the behemoth SDP, with everything built on one technology, is much reduced. After all, if a client likes a service provider’s US treasuries functionality they can still connect without taking the whole platform. This is fair in a perfect world, but as we all well know, no such place exists and as such clients are more likely to take multiple components of a service, across asset classes, if they are all delivered via one pipe. Going forward, if banks are serious about expanding their product coverage – and we are unconvinced they are – then the integration, or new build work will still have to be done.

Overall then, the multi-asset class SDP field is thin, and unlikely to grow much beyond where it sits now. UBS has long been a standout in this area and in recent years, both JP Morgan and Citi have added products and functionality in the rates space, most particularly around US Treasuries. Elsewhere, Goldman Sachs, especially with a strong commodities offering, remains a challenger, as does what we would term the quiet achiever in this category – BNP Paribas.

The easy route to being a multi-asset class provider is via futures markets of course – in fact, it seems that way in all asset classes beyond FX and, to a degree, commodities markets. It could be argued that the e-commerce space is showing up the FICC model for what it is – a disparate range of markets that behave differently, requiring different market structures, thrown together for the ease of management.

The futures route is the one largely taken by Citi – although it offers excellent product functionality in US Treasuries – and over the past year the bank has enhanced its order management functionality in this field including the introduction of new futures benchmark algos.

Inevitably another giant of these awards in recent years, JP Morgan, has also enhanced eXecute with updates to its US Treasuries product – the bank has increased the liquidity available across outrights, curves and flies, and extended the hours the click and trade service is available to 22.5 hours. It has also enhanced its orders functionality and will soon add these products to its excellent mobile offering (where it will join FX and commodities). Custom spreads have also been added to allow users to allocate different weights to different legs.

As far as commodities go, it was another big year for JPM, with the bank adding to an already huge product set with a range of post-trade services in base metals, allowing splits, allocations, currency and data adjustments, as well as aggregations. The bank has also added exchange market data panels for pre-trade and partial fill aggregation in the post – again both for base metals. The product expansion has extended to energies with the addition of cleared futures contracts, gasoil cracks and Brent non roll adjust (NRA). So-called ‘terms of business’ clients have also had their product access expanded to include ags and energy products.

In the commodities space, both BNP Paribas and Goldman Sachs have enhanced their service over the past year, the former has built out its product set from the previously fairly generic ‘commodity derivatives’ platform to include more detailed products, especially in energy and more broadly the analytics space. Previously BNP’s product set seemed aimed at the smaller end of the corporate spectrum – which remains important of course – but now it aligns better with larger clients. The latter could be important in the bank’s quest to integrate closer with these clients, and if successful, some of the basic tenets of Cortex, not least its sharing functionality, will play a role.

At Goldman, the commodities business is more mature – it was an outstanding leader in the field just a few years ago, and the firm has continued to add to its product set over the past year – included in a wider revamp of the platform. The main push at Goldman has been the addition of more underlying products to Marquee, thus building its suite of OTC and uncleared products further. Perhaps the biggest release from Goldman in commodities over the last year has been enhanced roll functionality, including the ability to roll forward-forward, and easier borrowing and lending functionality.

This may be famous last words of course, but with banks seemingly intent on prioritising their FX businesses thanks to the relatively low capital impact of running such an operation, the evolution in the multi-asset class space might have stalled before it really got going. Certainly there seem to be few plans in the banking industry to seriously build out anything other than market access tools, however it may well be that, as in FX, the SDP finds its place in the pre-trade analytics and research space. Time will, once again, tell.

Winner – UBS

Perhaps the question we should be asking about the future of the singledealer platform is not ‘who are the challengers to Neo?’ but rather, ‘can anyone ever hope to replicate that platform’s scale?’ Call it the fortune of timing, a grand vision or a project that fed on itself to scale incredible heights, the one thing that cannot be denied is that Neo is the ultimate in multi-asset class platforms.

In reality the answer to the question what drove Neo is probably all three of the above, but there is no doubt that it was a grand vision. Indeed this publication’s managing editor can clearly recall sitting in the office of the newly appointed global head of ecommerce at UBS, Hisham Caramanli, as he outlined his vision for the new platform and thinking “he’ll never pull it off”. Well pull it off he has and while there were undoubtedly sceptics in the early years, the last three have seen the genius of the vision realised as more and more UBS services were positioned on Neo.

Neo is a connected piece of technology, it is a network that works for both the client and bank. Above all else it represents a modern distribution tool for modern markets and while this suggests content – and indeed the content distribution element of Neo is probably its standout feature – the scale continues to be there for an enhanced trading experience.

Last year in these awards, we noted how the addition of UBS’ wealth management clients had given Neo a boost – 1.3 million users will do that to a platform – but the bank reports usage up over the past 12 months in addition to that surge in 2017. Inevitably when one looks at wealth management one thinks structured products and the bank has not disappointed in 2018-19. A broader range of structured products including more TARN and accumulator products and second generation exotics has filled out the bank’s FX options offering and in the more complex area of actively managed certificates (AMCs), the bank has added products which in turn has led to more trading volumes.

The process around building, sharing and trading AMCs has been enhanced and a strength of Neo – its scalability – has been exploited to provide better management tools and services including easier rebalancing. The bank has also started offering a dynamic rebalancing algo, an automated way to extract alpha from markets, which allows the customer to permission the algo to invest and create strategies on its own, which are measured against the customer’s benchmark.

The AMC offering at UBS is probably the true embodiment of multi-asset class as it allows clients to invest across markets, but also use multiple dynamic strategies provided by the bank. Simply load up your preferences for your portfolio and set it running – it will look across every market available to UBS.

On a more specific level, the bank is one that appears to be committing capital to its principal business in rates and credit, as well as continuing to provide direct market access services and Neo’s alerts framework, which is increasingly API-based these days, would appear to be the perfect tool on which to scale this business. In the equities business the bank has added a TCA dashboard and exchange-traded derivatives (ETDs), as well as enhanced reporting capabilities.

Neo has also played – and continues to play – a crucial role in UBS’ ability to win our Post-Trade Award on such a tremendous scale (11 years in a row and counting). In the past year the bank has enhanced its FX prime brokerage offering and in the broader post-trade space it has moved from the simple use of robots to what it terms RPA, or robotics process automation, a broader business structure that increases efficiency at both client and bank end.

The FX business is seeing the benefit of the rebuilding of the pricing engine in 2017 and while the algo suite of products is impressive, the bank is lagging a little behind some of the competition when it comes to pre-trade TCA services, although that appears to be as much a business scheduling issue rather than a problem getting such a product onto Neo.

Neo remains the standout multi-asset class offering and while we would not be so silly as to say it will never be matched – who knows what technology will bring? – it will remain competitive and a leading player in the SDP space.

That is because Neo is built to embrace new technologies, it is as much a philosophy as it is a construct, and that will ensure it remains relevant and valuable in the years to come.

Galen Stops

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