Regulations are having a profound effect on the trading landscape alongside a proliferation of Codes of Conduct. In the UK, there are three codes replacing the former NIPS code covering FX, Money Markets and Precious Metals. These developments are placing an extra burden on bank’s internal systems and processes. Those who have invested in new technology have found it easier to adhere to these new regulatory measures. For those banks relying on old legacy systems, they most likely have encountered issues; most commonly –
- Lack of end-to-end STP due to manual workarounds
- Operational workflows having to be drawn from multiple systems
- The fragmented IT landscape creating manual processes
- Difficulty achieving Regulatory Compliance
- Increased operational costs and headcount
- Cloud deployment frustrated by a lack of homogeneity
The nature of trading has also changed over the decades as liquidity provision became concentrated on a limited number of MarketMakers which impacted the capacity in which downstream banks operated. As more focus turned to credit intermediation and distribution for these banks (often regional or niche), the operating model turned to an agency or quasi agency role making distribution a key factor. In this context, sales desk support and a single dealing platform become part of the essential armoury. Voice trading has diminished and concentrates more on complex deal types and requires integration with a hybrid electronic trading system to remain compliant with regulation.
Many banks who started out with an FX single dealer platform are having to turn to a more comprehensive, cross-asset, offering to remain current in today’s markets. These trading platforms are transforming from a simple market view and execution to offer enriched functionality, and are often used as a hybrid of voice and electronic / e-afformed. Customers are also demanding the ability to achieve full STP for themselves, to manage their order books on bank-provided technology as well as running sophisticated management reports that satisfy, by way of example, their need to be able to prove best execution. So what parameters should a bank be looking at when considering upgrading?
What is required is a common platform that will suit the needs of both a bank’s execution desks and sales desks requirements. Starting with the ability to aggregate prices from a variety of sources, GUIs are needed that are designed to serve both external and internal customers alongside the ability to handle margins/mark-ups in a consistent compliant manner, and to allow execution methods suitable to the individual customer. As this includes voice execution so a robust sales desk solution is a must as is connectivity to multibank platforms and or aggregators for those customers who prefer that approach or when a sales desk has execution responsibilities as well as the sales role.
Integration is key so that advantage can be made of real-time capabilities. An example of this would be if a bank has a non-real-time credit system they could upload limits daily and the single dealer platform will track utilisation in real-time before the next refresh across all asset classes the customer trades. Tools such as chat facilities so that the sales team and the customer can work together on the same platform benefit certain trades especially those with some complexity.
Other considerations to take into account is having the ability to achieve end to end real-time connectivity especially to payment systems as well as settlement systems. Clients expect to be able to handle both execution of cross border payments and the payment instructions all within the same application. Having an ePayments module within the single dealer platform allows the two to share, many common to both, functionalities and give the client a superior experience. Also having a common holistic platform makes cloud deployment that much easier for banks wanting to go down that route.
And finally, do not overlook the mobile access component to any platforms. With the need to cater for remote working and the future potential for Central Bank Digital Currencies a mobile strategy has gone from a nice to have to probably an essential requirement going forward.