P&L Report Card

Although there is still definitely a push towards homogenising asset classes on the part of some regulators, generally speaking the last few years have seen practitioners realise that FX in particular, cannot fit into any of the boxes they currently have labelled “equities”.

Some banks went down this route and tried to lever FICC into the equities model and generally speaking it didn’t go well – as shown by those institutions retreating back to their siloed models.

This does not mean, however, that a strong multi-asset class offering cannot be built – it most certainly can, but it does mean there are inevitable challenges associated with doing so. First and probably foremost, which business runs the project? Even within FICC there are different drivers and requirements, throw in equities and the number multiplies by several magnitudes.

This is peculiarly a bank issue, smaller firms have so much more flexibility when it comes to looking across asset classes, however the latter cannot deliver much beyond pricing and execution analysis. When it comes to the important content and rich functionality needed to deliver a broad range of data and analytics, the banks are still the place to go.

The only way to really deliver on a truly multi-asset class experience is to establish, as we have noted before, a dictatorship of sorts – someone has to grab the reins and not let go, insisting all the while that everyone walks to the same beat (or rather works on the same framework). There is no room for egos in this process, except, of course, for the person who “owns” the project!

The majority of banks have tended to either remain strictly silo-ed – much to the irritation of some of their clients – or to bucket businesses, for example FICC and equities. This means that the evolution towards multi-asset class, single dealer platforms is very uneven. The solution, one suspects, probably lies in the creation of an e-solutions team that runs all asset class development work.

On one hand you have the all singing, all dancing Neo from UBS, which covers just about everything that can be traded, on the other you have platforms like Deutsche Bank’s Autobahn that lets you build your own solution. In the middle, you have a bunch of banks offering varying degrees of choice.

Probably the biggest advance in the multiasset class space this year came from JP Morgan, which took its commodities business to another level and also built on an impressive 2016 for its fixed income and futures functionality. Although it is one that is transitioning to HTML5 as we write, JPM does appear to have its technology spec worked out and as such, alongside the shift away from Flex, it is able to add products at a pace – which it is doing.

Citi also continues to progress, albeit at a slightly slower pace as it continues to build on its already superb FX functionality. Of particular note was Velocity’s futures product, where improved graphics have helped make the execution and monitoring of orders much easier than they were a year or two ago.

It has been forgotten to a degree as the bank has been a little quiet on the product development front in recent years, but Deutsche Bank’s Autobahn remains an excellent multi-asset class solution. The App Store framework around which Autobahn is built, allows a client to access content and information from across asset classes and execute fixed income, futures and, of course, FX. Deutsche has also done an excellent job of enhancing its analytics offering over the past year and now offers a rich, multi-asset class experience aimed at all client segments.

We are also interested to see how Deutsche’s stance on open source and the sharing economy goes. The bank is definitely ahead of the game when it comes to understanding that some things are best done by utility and this approach means that not only is it open to collaboration on areas that do not benefit from competition, but the dollars and resources it saves can be delivered to the development teams for new products and functionality.

Beyond that group, the market thins out a little with most banks focusing on futures market access or, in the case of Goldman Sachs, commodities, where the firm remains a powerhouse.

BNP Paribas is another institution worthy of note here, for while the range of products supported on Centric is not as broad as some others (it has made a serious effort in commodity derivatives over the past year, however), the bank is very engaged with new ideas and new technologies in how it interacts with clients. Given how relatively easy it is to add products to a well-designed tech stack, there should be no little optimism at BNP regarding its future, because it exudes the innovative approach so necessary to thrive and survive in the modern world.

There are some fixed income offerings around, but generally speaking the door has closed on developments in these markets when it comes to single dealer platforms – market access is the only game left in that particular town.

Indeed, it could be argued that if we are right and the world is heading towards a world in which components of platforms are delivered via third party channels, we could be at, or even beyond, the apex of the multiasset class platform.

Certainly the different asset classes have to be delivered on the same tech stack if they are to be downstreamed efficiently, but one has to question whether any bank board will now see the value in committing vast sums of technology resources and budget to building a “super platform”? With cost pressures still very much to the fore in the FICC space especially, and margins holding steady (at historically low levels), the business case is that much harder to make and as such, we may well never see the likes of a Neo or an Autobahn again, because that is one expensive catch up trade for an institution.

If the future is indeed componentised then firms like Goldman Sachs, another institution currently re-skinning its platform to HTML5, will be in a strong position. It seems clear that the bank is intent on breaking down silos to help deliver a single tech solution and if that is indeed the case, then its timing could be excellent. If a bank is building now, it is probably better served focusing on delivering specific solutions (in any or all asset classes) that can be delivered piecemeal.

Another aspect that should help drive this componentisation is the shift occurring on the customer side. Although the generational shift we anticipated last year is not yet happening – if anything, the last year proved the value of experience in markets – there has been a structural change at many firms, especially on execution desks.

As more clients expect their execution specialists to be proficient across asset classes, so the analytics and execution tools they require will need to be adapted. Of course, much of this execution work is done on public platforms outside of FX, but again, the firm that delivers excellent analytics alongside market access tools and robust FX pricing and processing will stand a better than even chance of grabbing that extra little piece of the client wallet.

Winner – UBS

When we talk about not seeing the likes of the “super platform” again we are, effectively saying, “will anyone be able or willing to replicate Neo?” for the platform just gets better and better.

Each year we go in expecting a brief update on developments, little tweaks here and there, and each year we come away with pages more of notes regarding new products, new functionality or a new delivery mechanism.

There has been a lot of discussion in recent times about the Silicon Valley model and financial markets – as we report in this issue following a recent Profit & Loss Webinar – but UBS has been there for some time. Call it the Amazon model or whatever, Neo incorporates elements of the shared economy, is easy to access, well-connected and, importantly, a uniform experience.

Neo has also enabled UBS to sail the occasionally stormy waters of MiFID II fairly comfortably, given its flexibility and the bank has not had to worry unduly about its platform being fit for purpose. A big part of the regulatory world is control and ensuring you know everything that goes on within (and occasionally without) the institution’s walls and, not for the first time, we find ourselves awestruck at the foresight within UBS when it designed and built this outstanding platform.

Neo was constructed along the lines of open, but controlled, access – everyone can interact in an open, transparent environment that protects the participants. Yes, there is also the fact that the controls in place on Neo help the bank, but the emphasis when talking about the platform is on the word “hygienic” – it helps protect users, something that is very helpful in the new regulatory world.

The big news for Neo this year has been the addition of UBS’s wealth management clients to its roster, a small matter of in excess of 1.3 million potential new users. There have been questions about how Neo will actually pay for itself in the past – especially with tighter margins and reduced revenue streams, but perhaps this move of a mass client base onto the platform answers that. Often we think about these platforms through the prism of the institutional world, but high net-worth and other investors offer tremendous value and UBS clearly identified that when Neo was designed.

In some ways, FX was a lower priority at UBS in recent years as it strove to roll Neo out to those areas more likely to seriously increase revenue, such as wealth management. This has resulted in the FX part of the platform evolving at a slower pace than other asset classes, but evolve it has and in the last year the bank finally decommissioned the FXTrader platform and is also a long way into a programme to enhance its pricing and risk management capabilities.

The latter obviously involves work “under the hood”, but the ability to price and show axes quickly and to the right people should not be under-estimated. As part of this work, the bank has also enhanced its monitoring of its systems and processes to include pricing, something that gives it much more end-to-end control.

“Above the hood”, UBS has invested heavily in its suite of algo execution strategies, including a “smarter logic” strategy that places an order according to the (less) likelihood of market impact rather than just on price. An urgency factor – the ability to dial the strategy up and down – has also been rolled out, as has access to CME futures.

The bank has also added improved block trading and order upload functionality as part of the evolution, something that is likely to stand it in good stead with the real money segment in particular. FX options have not been overlooked either, with more second-generation exotics added to Neo over the past year, again something likely to help build business levels with the investor community.

In the Rates business, UBS has rolled out algo capabilities and focused on unifying its processes across products, be they bonds, interest rate swaps or other derivatives. It has leveraged some of the work done by the FX team to deliver a low latency trading application, this structure has also helped the bank increase internalisation in the more commoditised products.

Credit remains a strong point for UBS thanks to its BondPort platform, this aggregates liquidity for clients, effectively providing a CLOB that is owned by UBS, thus making life a lot easier for those clients that don’t want to undertake repetitive and time consuming documentation work. Clients can also post liquidity to the platform and filter their liquidity sources according to their needs.

In the post-trade space, UBS remains without peer, and as will be discussed later, has further enhanced its use of robots – also to come later is a more in depth look at the equity derivatives and structured products business, which remains excellent and is, quite literally in many cases, made for a platform like Neo.

UBS is willing to engage externally, another key factor in what we believe will be the driver of future success. It has integrated Symphony into Neo at the expense of its own internal messaging systems as just one example of that, but the impression, when talking all things Neo, is that it is open to any good idea that will help improve the client experience. There is the sense that the bank understands that the key to a successful future in the single dealer space is inter-operability.

An easy way to describe Neo’s value is that it normalises and automates more dayto-day tasks than any other platform – and in a world in which efficiency gains are everything, that is no small issue. Many years ago the then head of FX at UBS, Andy Amschwand, told Profit & Loss that he wanted the bank to be more like a major manufacturing business (his preferred segment was the motor industry). The idea was that it would become the most efficient, most productive institution in its field – one that was able to monitor its performance, be scalable and deliver a product(s) the clients really wanted.

That has been achieved in so many ways, in so many products, thanks to the vision and excellence of Neo.

Galen Stops

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