Any investment bank worth its salt offers institutional investors a single dealer platform (SDP) for their foreign exchange transactions these days, but the bar is being raised by some and clients could be wooed away from those not keeping up.
Just over a decade ago, Deutsche Bank launched its Autobahn platform, which arguably still leads the market in terms of flow and technology. But today’s Autobahn platform is not the same as the version launched in the Nineties.
This is indicative of a change that is sweeping through the sector as clients are demanding more and banks are desperate to help them.
Ian O’Flaherty, global head of FX eSales at Deutsche Bank, says: “How we built the platform originally was not how we would have done so today. We completely rebuilt it this year, making it more modular and bespoke after asking our broad range of clients what they needed.”
This year, Deutsche Bank was the first to come to market with a “blotter” function to allow investors to instantly track electronic and voice trades made with the institution online. And it would appear these upgrades are currying favour with investors.
Clients are becoming more demanding and asking for rich pre and post-trade services
Thomas Soede, global head of fixed income electronic markets at BNP Paribas, says: “In 2007 we hadn’t envisaged the extent to which electronic trading through SDPs would continue to maintain its momentum.
“On the execution side for example, SDP will give clients access to superior proprietary execution methodologies – this will further drive the demand for SDP.”
In March, the French bank rolled out Cortex to replace its previous three-year-old eFX SDP. However, although execution is the major consideration for investors, it is not the only reason for choosing an SDP. “It is not just about price provision for traditional spots and swaps, clients are becoming more demanding and asking for rich pre and post-trade services,” says Mr Soede.
“Banks with strong internal business alignments will be able to offer investors a rich front-to-back client experience, including market data, research, execution and clearing services, all accessible through a single interface.” SDPs run by banks often offer prime broking services, research, performance measurement and portfolio optimisation tools.
Banks claim counterparty risk is not an issue as clients are unlikely to just use one platform or trade partner. But, with this in mind, why not just stick with using a multi-dealer platform?
“Multi-dealer and SDPs can co-exist – some investors want both,” says Deutsche Bank’s Mr O’Flaherty. “The multi-dealer platform has multiple prices and deal flows, but they have to cater to the needs of many and cannot really be bespoke. If they have 1,000 clients and only 50 of them want a certain product, it is a very costly exercise to deliver it.”
The most costly of all, however, is having insufficient liquidity to carry out the trades executed by clients.
“Providers have to have sufficient volume to generate deep liquidity at low cost,” Mr O’Flaherty explains. “Overheads, such as technology, transaction and staff costs, all eat into margins. If providers can’t generate flows and liquidity, they won’t last.”
