Single-Dealer Platforms: (2) the geography axis

In a recent post, I talked about some of the major ways in which SDPs are currently evolving, and the “axes” along which they are expanding. I promised to provide more details on these individually. This post is about the geographical axis.

At Caplin, we have focused for many years on helping banks build world-class SDPs. Until a couple of years ago, our customers tended to be based in New York and London, since most of them were global institutions. Not any more. We still have important clients in those places, of course, but most of our revenue now comes from Canada, Australia, South Africa, Europe, the US outside New York… in fact we are seeing an extraordinary level of activity at regional banks throughout the developed world.

And while the ten or so remaining Tier One banks are still fixated on building this kind of thing from scratch in-house (often, it seems, for no better reason than that old habits die hard) the Tier Twos are much more comfortable buying in technology platforms and using them to build highly differentiated offerings in a fraction of the time and at a fraction of the cost. As a result, the best trading solutions being produced by regional banks are more innovative and compelling than many of those being produced by the globals.

Why are regional banks seizing the initiative in this space? The answer is mainly to do with client relationships. Successful regional banks are good at client relationships — they have to be, it’s often their biggest competitive advantage. So they are quick to realise the value of extending these relationships into the online sphere, and often know their clients a whole lot better than global banks do. This allows them to segment their market precisely, and tailor offerings accurately to client needs. And that is the starting point for a great SDP.

Another advantage for regional banks is that they tend not to be encumbered by legacy proprietary technology, and so are free to harness the best and most forward-looking approaches. At a time when Web app technology is advancing faster than ever before, that can be a crucial factor.

And the Asia/Pacific banks in particular have one final factor in their favour: they are not inhibited by regulatory risks like Dodd-Frank and Mifid II. If anything, they mostly see these as a reason to push ahead faster with electronic channels to market, conscious of the looming possibility of regulatory arbitrage.

So expansion along the geographical axis is rapid, and shows no signs of slowing down.

This has big implications for other axes such as asset class and target client segments, which I shall be writing about in the next few days.

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