The evolving global regulatory landscape is fundamentally changing how banks operate, the returns available, the business lines and markets in which they can effectively compete, and the way in which they interact with and service their clients via their Single-Dealer Platforms.
For example, under Dodd Frank, standardised swaps trading with clients will migrate from OTC bilateral trading, over to regulated venues such as SEFs. This will see the value proposition and revenue generated for banks likewise shift from a trading P/L based on direct risk transfer pricing with clients, through to fee income from an agency based execution advisory model, and ancillary post trade value added services. According to JP Morgan this shift, will reduce their revenues by some $1-2bln, although new revenue opportunities in OTC Clearing & Collateral Management would add back some $0.3-0.5bln.
To support this shift, Single-Dealer Platforms will continue to evolve to remain relevant and deliver greater value and insight to clients by for example providing SEF liquidity aggregation and smart order routing, as well as providing post trade suite of tools and services around collateral optimisation.
In corporate bonds, the higher levels of regulatory capital needed, has resulted in greatly reduced inventory being held by banks, and consequently a reduction in their ability to provide clients with risk based pricing . Here again, Single-Dealer Platforms are evolving to provide agency based capabilities for client-to-client trading rather than risk pricing for clients in corporate bonds.
The above show how Single-Dealer Platforms are continuing to evolve, remain relevant and retain their position as “The premier bank to client relationship channel”. Such developments were covered in a recent white paper, SDPs in a cleared world.
Banks operate silo based lines of business, running disparate back-end asset class technology and service silos that rarely talk to each other. Clients however, require (depending on their segment and level of sophistication) risk management and workflow solutions that straddle multiple asset classes.
That is why in our opinion, a good Single-Dealer Platform will provide clients with:
A compelling user centric experience with intuitive navigation across multiple back-end silos. Delivering insightful pre-trade decision support, and depending on client segment and product required, a blend of principal and agency based execution, complemented by relevant risk management tools and post-trade services throughout the clients trade or investment workflow life-cycle.
Interestingly, I recently came across a research report which commented on the new Single-Dealer Platform from UBS called Neo. The report appears to coin a new term, and seeks to position Neo as what they call:
“the first integrated ‘Digital Investment Banking’ (DIB) platform, going beyond Single Dealer Platforms”.
This might be a catchy term, but in my view what UBS has built with Neo is nonetheless another example of how Single-Dealer Platform continue to evolve and adapt to new market realities as banks look for new and innovative ways to service their client franchises.
As an aside, nearly a decade ago (2005), Dresdner Kleinwort Wasserstein (DrKW) launched a new e-commerce business run by Sean Park (of Park Paradigm fame) to develop web-based trading and analytical tools which they called their ‘Digital Markets Division’.
So I guess the term had been around for quite a while anyhow!