Single-Dealer Platforms, were once the preserve of the global top-tier ‘flow monster’ banks such as Deutsche, Citi, Barclays and UBS. Requiring board level sponsorship and mega investment to build and maintain leading edge e-trading franchises.
Based on back of envelope stuff, I would suggest that over the past decade, each of the top five global FX banks would have spent in the region of $600-800mln to build, enhance and upgrade their e-trading technology capabilities.
Yet, despite this huge investment, the FX market share of the top five global banks has actually fallen by nearly 1% between 2008 and 2013 from 58.21% to 57.36%, with Deutsche being the biggest loser (down 6.52%) and Citi the biggest gainer (up 7.41%), as discussed in the EuroMoney 2013 FX polls.
So, why aren’t these banks gaining market share, and if they aren’t who is and why?
When we look at the lower ranked banks in the EuroMoney FX Polls, we see that they have made gains over the same period at the expense of the top five banks, as the chart below shows.
Changes in FX market Share between 2008-2013 groups of the top 50 FX banks
So, what’s happening here? Some quick thoughts on some of the dynamics at play here are:
Many more regional banks have been investing in their own electronic trading and SDP distribution capabilities, and the business justification, SDP vision and ROI for these investments has become stronger based on a combination of factors which include:
- Migration of ‘e-trading talent’ from global banks to regional banks
- Lower cost of ownership, and faster time to market for deploying initial SDP framework and adding new products
- Lower cost of sales/client coverage by migrating from high touch voice to scalable low touch e-trading
- Greater ‘Sales Trader functionality’ and MIS data mining available to support high value clients
- Greater levels of differentiation, stickiness and client loyalty achieved through well designed client centric SDP
Interestingly, in Risk.Net Barclays David Wood (Director of Investor Solutions) talks about their Structured Products platform Comet, and makes some interesting points, which today apply to smaller banks building their SDPs as well:
….Barclay’s launched the Comet online structured product platform in 2010 as a way to deliver its range of structured products to wealth managers around the world.
“There weren’t that many third-party platforms at the time,”. ….By building its own web-based distribution tool, Barclays found it could reach new clients and deliver its products to them more cheaply.
The bank immediately saw an explosion in the number of quotes wealth managers and private bankers were requesting, says Wood. “From a client point of view, Comet dramatically changed the way they could behave. Previously, we would send out grids of product ideas and clients would call in with specific requests. But there was no dynamic way for clients to tailor their own requests,” he says.
The single-dealer environment continues to be a place where banks can innovate in the products and services they offer clients
Today, Caplin’s clients are benefiting from the same value from their SDPs as banks like Barclays, but at a fraction of the cost. In April, we won an award for the ‘Best Implementation’ at a sell side firm for ZKBs eTrading Pro, web based Structured Products platform!
There is more to say on the business drivers and value proposition for investing in an SDP, which we will cover in future posts, especially in light of regulatory changes.
