Single-Dealer Platforms Could Open Up
The next evolution of single-dealer platforms could involve the largest banks offering rival services and products on their systems according to consultancy Sapient Global Markets.
Sean O’Donnell, director of technology at Sapient Global Markets, wrote in “Crossings: The Sapient Journal of Trading & Risk Management” that the number of single dealer platforms has risen dramatically over the last five years leading to commoditization and difficulty in standing out in a crowded marketplace.
One of the solutions could be for leading banks to allow services and products from other institutions to be traded on their SDP.
O’Donnell told Markets Media: “I know one Tier 1 bank that is working on that initiative and branding itself as Selfridges or the mass high-end SDP which aggregates the best brands under one umbrella.”
He said Tier 2 banks, who cannot compete on price, could use a similiar approach or by offering value-added services such as research.
O’Donnell wrote that new regulations such as MiFID, Dodd-Frank and the introduction of swap execution facilities have all impacted the grey areas of price discovery and execution, making it difficult for firms to differentiate themselves purely on the price offered through their SDP.
Paul Blank, director of eTrading solutions and partner program at Caplin Systems wrote on the SingleDealerPlatfroms.org blog that as regulations to reduce their balance sheets they are reviewing their capital intensive fixed income businesses.
Blank wrote: “As a result, clients will be offered execution services from banks that will be a blend of principal/agency, bilateral/cleared, all of which requiring investment by dealers in new technology and connectivity pipes to execution venues such as swap execution facilities, post-trade reporting repositories, central clearing houses and more.”
As a result Caplin is seeing a number of regional banks looking to extend their foreign exchange SDPs to support delivering fixed income capabilities to clients. “It seems that the regional banks may be stepping up in fixed income as the top-tier banks retreat,” added Blank.
O’Donnell said the expansion of services that include cloud based, always-on, easy onboarding and a pay-as-you-play commercial framework also reduce SDP stickiness.
“Similarly to the breakdown of Facebook’s social media stranglehold by firms such as WhatsApp, Instagram, and Line, companies too are breaking down monopolistic SDP platforms,” he added. “Today, clients are not really consolidating their trading through preferred single suppliers; they will always hunt for the best price, best service and most trusted supplier in any given market.”
Featured image via iStock
Electronification of the municipal bond market also presents a large opportunity.
The success of Northbound trading showed electronic execution is way forward for the bond market.
IRS trading volumes have fragmented without an equivalence agreement.
Increased electronification has created useable and accessible real-time and historic trade data.
Members are evaluating payment-versus-payment for currencies not yet eligible for CLSSettlement.