Banks have finally recovered from the hangover brought about by the giddy exuberance of the dot.com boom.
When these awards began four years ago, banks were boasting about issues that now sound rather silly. They would claim to have the best design, the most consistent branding, and the strongest site stickiness, whatever that meant.
Now they are better aware of the potential and the limitations of technology. They have seen how a bank can use it to push itself up the market share rankings in liquid products. And they know that pretty design is worth nothing if the dreary but essential technological plumbing such as pricing engines, trade routing and post-execution processing do not work.
They have also learnt the hard way that providing powerful execution tools to clients is a bad idea for banks whose risk management processes are too weak to stop the trading desk from getting exposed.
The front end of trading applications is no longer an area of focus. Most sizeable banks offer open APIs for trading, which means they can offer electronic execution through any type of interface. This may be a single-dealer website or a multidealer portal, or it could be a private line, a Fix protocol-based connection or even a system that links directly to clients’ own trade management systems.
That means some banks can sweep an investor’s cross-border equities portfolio and automatically reconcile any necessary foreign exchange trades. Some can accommodate the kinds of black box traders that churn out thousands of price requests a minute in a range of products. With those sorts of speed and those levels of integration, trivial matters such as site design are much less significant.
Post-trade in the limelight
Meanwhile, banks’ focus on the back office is becoming ever more pronounced. Two years ago, Euromoney struggled to convince any banks to demonstrate their electronic post-trade services as part of these awards. The exception here is Dresdner Kleinwort Wasserstein, which has long had arguably the very best cross-product post-trade portal of any firm. The bank continues to add new products and new functionality to the ops/tracker product. Up until now, DrKW has had very little competition in the post-trade categories. In 2003, however, it had no fewer than seven competitors in fixed income, derivatives and equities, and 14 in foreign exchange.
The same pattern can be seen at multibank and independent trading platforms. In foreign exchange, FXall is making excellent progress in developing its Settlement Center and generally in making post-trade allocations and pre-trade netting more efficient. Its rival FX Connect also offers a straightforward but well respected trade matching engine. And in fixed income, TradeWeb has already launched its settlement product in the US and will soon release it in Europe too. Its post-trade allocations tool is already live and widely used.
The most knowledgeable banks in electronic services have already started to become technology advisers. Any of the banks that have won top awards here are prepared to advise corporates , institutions and funds on which software vendors offer the best tools in trade order management, risk management and post-trade processing. For favoured clients they will even buy and install the appropriate software. Clearly the banks expect some sort of compensation for this, in the form of greater trade flows, but they can not insist on it.
All of this means that it has never been easier for clients to take advantage of the most sophisticated technology available in finance. It means that three clever people with a decent computer and good internet access can set up a hedge fund in a matter of days. And it means that banks are no longer competing on price in liquid markets – they are competing on their speed of pricing, the efficiency of their back office and the quality of their technological advice.
