2 Dec 2010
Single dealer platforms (SDPs)are a virtual brand champion, providing not only an electronic trading platform but also insight into the bank's trading ideas, its core Brand values and aspirations. Graeme Harker answers some questions on this exciting new area.
Banks are increasingly seeing their single dealer platform as a core channel to market and a major touch point with customers. The new generation of SDPs seem to include an increasing volume of proprietary trading information, delivered in a streamlined format, providing competitive advantage for investment banks that grasp the opportunity. This article looks at what the benefits are for an investment bank adopting an SDP and gives advice on efficiently creating a next generation SDP to help get ahead of the competition.
The proliferation of electronic trading has been a defining characteristic of the front office over the last 20 years. Driven by national exchanges centrally defining their e-trading infrastructures, the equities and exchange markets led the way. They exposed their order books for participants to trade electronically with their counterparts, and these became the first multi dealer platforms (MDPs).
Multi dealer platforms such as TradeWeb and Bloomberg have been widely adopted, but only offer more commoditised products. An investment bank's SDP is its own electronic trading platform; allowing institutional investors and hedge funds to trade a much wider range of products from a single market maker.
The first generation of SDPs generally focused on execution, as the fragmentation of bank offerings for different services was not a material problem in terms of customer uptake. The early adopters of SDP built a solid reputation by delivering a high degree of certainty of execution to the customer and allowed the banks to grow market share in high volume markets such as foreign exchange.
Banks saw that an electronic execution offering provided the ability to increase scale in order to support new additional 'electronic only' counterparts at negligible incremental cost. This provided market colour and had the potential to make a material difference to a bank's market share.
The initial success was a catalyst for many banks to align and cross-sell electronic distribution, co-branding into an overall e-business franchise that covered their 'siloed' SDP offerings and MDP presence.
Additionally, with many banks undergoing the organisational change to align previously siloed Foreign Exchange (FX) and Fixed Income (FI) activities into a single Fixed Income Currency and Commodities (FICC) division, the market has seen a natural drive to break down infrastructure silos to establish single distribution coverage in these markets.
As bank-side technology evolved, certainty of automatic execution became the norm rather than a differentiating factor. Offerings that reduce customer-side system fragmentation by offering more cohesive bank services and personalisation have become the prime differentiator in SDPs.
