About Us  |  Search  | FAQ  | Contact Us
Risk Management
Human Resources
Smarts Cards
Optimise CRM
Data Warehousing
Disaster Recovery
Swift Messaging
BPM & Workflow
Capital Markets
Global Custody




E-commerce in investment banking


The main focus of where Investment Banks see the challenge in the coming months (and years) is in the area of E-Commerce. This has created a number of changes in the ways that banks have organized themselves, joint offerings in the form of ECN's (Electronic Communication Networks), and banks offering services to other institutions in the form of ASP's (Application Service Providers).

As banks started to move into e-commerce they found it very hard to integrate it within their existing infrastructure from the start. This led to a number of banks having separate 'incubator' start up units that have been used until banks have reached a level at which e-commerce can be rolled out within their existing (enhanced) infrastructure. One of the effects of e-commerce is acceleration of the integration between the different business areas; not only within similar product lines (e.g. interest rate products) but also across different product lines (interest rate and equities). This is being driven by the demands of the banks clients such as fund managers.

One of the areas that their clients are looking for are the ability to look at prices through a single view or 'portal'. This has led to a number of joint ventures, where banks are grouping together and offering the ability to trade with a number of them on a best price basis (providing that the clients have credit lines in place). Clients have been increasingly stating that they do not want to have a different screen from every one of the banks that they deal with.

Trading Systems
Banks are pressing ahead with a number of offerings in different areas, but still to a large degree single product systems. A number of banks are integrating their interest rate areas but no-one yet has pulled in the equities side of the business as well.

Futures and Options
One of the first areas that e-commerce appeared was Futures. UBS Warburg's Swiskey product first appeared over Private Data Networks but has since been migrated to the web. It provides their institutional clients with access to their Exchange Traded Derivatives Research, Execution and Clearing services. Dresdner Kleinwort Benson came into the market early, with one of their first offerings being in the Futures area and is known as GATOR (Global Access to Order Routing). This is an Internet based application for placing orders for exchange-traded derivatives. Another entrant building a significant offering on the web is Barclays Capital. They have introduced their e-Futures product, which is an order management tool together with order execution directly onto the exchanges.

Foreign Exchange is another area that has seen a proliferation of systems. This is to be expected from one of the most liquid markets. One bank that has really raised its profile is Dresdner Kleinwort Benson with its Piranha system. It provides the capability to trade all major FX currencies and build all currency pairs (spot, outrights and swaps). Barclays introduced in March their first release of their e-Foreign Exchange product and also announced a joint venture with Charles Schwab. Their focus of the system is to process very high volumes at low cost. It processes spots and forwards, and has a blotter, ticker and scratch pad as well as market chat rooms. Meanwhile UBS Warburg introduced in May its new Foreign Exchange transaction platform, "Fx2B". They also announced that they would provide live foreign exchange pricing and execution of foreign exchange transactions for E*Trade in its global cross-border trading network for online investors.

Bonds have been a big area of activity recently. Nomura have recently introduced Bond-Zai, an online bond trading system that will allow their clients to view real time prices and trade electronically with Nomura via Bloomberg. The next release will not only allow investors to assess live prices and execute on the Web, but also to specify particular investment criteria. It will soon enable investors to retrieve offerings from multiple sites on the web to offer investors an aggregated picture of available investments in the market place that meet their particular criteria. Barclays have their e-Bonds system, which is an on-line secondary bond trading system that offers live pricing, analytics and trading. The bonds are drawn from a list of the currently traded bonds.

Bonds are increasingly being marketed over the web. Barclays (via their e-Origination product) worked with the World Bank in launching one of the first global issuances. Clients can enter orders directly onto the web, which in turn feeds through to Barclays and World Bank order books, with the allocation fed back to the clients. UBS Warburg and Freddie Mac launched in January one of the first international bonds to be marketed and subscribed to via the Internet.

Integrated Offering
CSFB is one of the first banks to offer an integrated product offering, PrimeTrade. They added an FX module at the start of the year. PrimeTrade is an Internet-based multi-product trade routing system, and related clearing platform with analytics. The FX module enables authorised institutional customers of PrimeTrade to trade in major currencies on an automated basis for spot, forward and swap transactions. It incorporates trade order routing and clearing, and research in one global platform, which enables customers to obtain confirmation of their trades, automatic reconciliation and export of these trades to their back office system

Multi Counterparty Portal
State Street is one of the leaders in this area, with Deutsche Bank signing up as one of the first institutions to adopt their FX Connect product. This is part of the State Street Global Link offering, which provides research, analytics and trade execution tools from a single platform across multiple markets and multiple assets. The main usage of Global Link is concentrated heavily among asset managers. FX Connect itself is a real-time, interactive foreign exchange execution tool, which provides transmission of trade details to multiple banks and brokers, allowing institutional investors to focus on risk management instead of the clerical aspects of trade execution. Equity trading is also supported via their Equity Connect and Lattice products.

Research has also changed dramatically with the introduction of the Internet. Whereas previously Research was faxed out, it then became available as downloadable PDF (Portable Document Format). Now the approach is changing towards Multi Media. In future, as market events occur, subscribers to a banks service will see for example a video window pop up with an analyst giving their views, with a report being downloaded in the background, a graph showing the reaction of the markets in another window, along with the ability to chat with the bank and other clients. UBS Warburg has announced the spin-off of its Interchange chat product. A new company called Parlano will sell and support the entire suite of Interchange products. Users can 'chat' online, and share knowledge in real-time, as well as send files and links instantly via an unlimited number of channels. These channels can be created ad-hoc, as structured public forums with large numbers of users, or as restricted channels. The application is already in use with over 165 clients of UBS Warburg.

The trend here is that clients want the ability to enter all their trades into one system for portfolio and other risk. However there are problems with this being provided by one bank, as clients will not want a single bank to see their trades with other banks. The current trend is for individual ASP's (Application Service Providers) to be set up that will process the risk for clients. These will be independent from banks, although banks may be investors in them.

CSFB have chosen to go the individual bank approach and introduced PrimeRisk II that is integrated into their PrimeWorld family of products. They have merged their own models with the instrument valuation and Monte Carlo Value-at-Risk capability provided by Algorithmics (via RiskWatch). J P Morgan have gone with the ASP approach, spinning off Cygnifi, their Risk Management company in which they retain a minority stake. Cygnifi is aiming to be the first ASP to address Market and Credit Risk, as well as providing consultancy on these areas and Collateral Risk. Their offerings fall into a number of different areas; portfolio valuation and market risk services, counterparty exposure and credit risk services, and collateral management services. Another new individual offering is CFOWeb, the first independent portal site. It is targeted at CFO's, Fund Managers, and Corporate Treasurers, and offers Portfolio Analysis (Mark to Market, Cash Management) and Risk Management (Value at Risk, Scenario Analysis, Market Rate Sensitivity Analysis).

Back Office
Banks are starting to turn to this area to provide added value services. Dresdner are providing their etd/settlement product, initially for Futures and Options. It allows the clients to retain records of all trades undertaken, and it provides a range of query fields through which past and present positions can be analysed. Dresdner are targeting it to possibly replace single function legacy systems. Barclays have implemented their e-reporting product across a number of product areas. One area that they have focused on that is becoming increasingly important is margin optimization. This allows you to calculate a single net margin call across FX and OTC Derivatives, Exchange Traded Futures and Options, and Repos. This is part of an increasing trend in banks to provide full service and transparency across all phases of a product lifecycle.

One of the biggest debates in the Investment Banking World is the role of WAP (Wireless Application Protocol) in the Investment Banks in the future. The general feeling is that the main role will be to display information, i.e. as an alternative distribution channel. Wireless will be used to stream prices, market alerts, and send credit alerts to credit officers. Anywhere where communication lag is critical. For example, UBS have recently announced that they are providing their Internet-based financial information system UBS Quotes via WAP-enabled telephones. Starting immediately, market quotes and indices for thousands of securities can be called up via WAP-enabled phones. The quotes cover 6 global stock markets and are offered in real-time for the Swiss Exchange. This includes all standard quote information and a number of charts.

The Future
Clients want to have integrated portals where they can compare prices and offerings from a number of different banks. These may be driven by one bank, a number of banks acting together, an independent vendor or an existing data distribution vendor. A number of clients are talking about having their own internal distribution mechanism that banks would interface to. The feeling is that a common data distribution interface standard will emerge, so that banks will be able to supply one trade feed.

Settlement is a big issue particularly in FX. Clients need the ability to open a trade with one counterparty and close out with another. Until systems like CLS (Continuous Linked Settlement) and/or other similar ones become operational, it will limit the capabilities of the market.

Security continues to be a big concern. Whereas before you would recognise who was on the phone trading with you by their voice/personality, how do you recognise them when it is all electronic? There has been a lot of debate about Digital Certificates and Smart Cards but what happens when somebody walks away from their trading workstation and somebody else executes a trade? One possible solution that banks are exploring is bio-verification i.e. the trade is authorized via a thumb or voice print.

One area that banks do agree on is that one of the factors in who will be the winners in e-commerce are the one that are most efficient. Although all banks have driven towards Straight Through Processing (STP), it is crucial to get this efficiency as margins are driven ever tighter by e-commerce.

Geoff Kates
Managing Director




Secure Banking
Internet Banking
Clicks not Bricks
Better Infrastructure
Banking Software
Automated Dealing
Synergys going dotty
Focus on Technology
Web Based Banking
Trading room costs
Offshore fund managers
New age of hacking
Electronic trading
Money laundering
The Perfect Storm
Supplier Financing
Speculative Bubbles
Index Funds
Convenience banking
Two-tier banking
Gaining Clickshare
Cutting out paper
Tracking trends
Banking on Security
Real Time
security under scrutiny
Personal touch Banking
Sell side value
Anti Money Laundering
21st Century Banking



Home  |  About Us  |  Search  | FAQ  | Contact Us