eCOMS: WHERE ARE WE NOW.

Serge Marston, managing director, and global head of eCommerce sales at Deutsche Bank discusses their evolving eCommerce platform.

There has been so much regulation since the financial crisis. Which are the most important for your business and what impact has it had?

In the past, we had three internal areas of focus – trading, sales and technology and they would all leverage e-commerce. Now we have a fourth – regulatory and compliance – which is also a significant focus. There are three main pieces of regulation that have and will change the business fundamentally. There is Dodd Frank in the US and EMIR (European Market Infrastructure Regulation) which among other things is forcing the migration of OTC (over the counter) product onto electronic exchanges. Europe also has MiFID, while globally Basel III is imposing capital and liquidity coverage ratio requirements on banks. That is having an impact on their balance sheets and the ability to provide products and services.

The main challenges are the co-ordination of all these different rules. There are a lot of moving parts and it is still a work in progress. I also think that there is a difference between the US and Europe in terms of the legislative process. The US tends to implement the rules more quickly than Europe and then they introduce amendments over time. In Europe, it is the reverse in that if you look at MiFID I and II, there is about ten years between them but once the rule is passed, it’s much more final.

In terms of impact on the industry, the raft of regulations has seen the buyside take greater control and the sellside develop new solutions and models. For example in the pre-trade space in credit, people try to get as much information as they can now before making a decision while there has been greater attention to post-trade analytics and how orders are filled in equities and this is seeping into the FX space. In rates, on the trading side, there is more time automating the way we aggregate liquidity.

Against this background, what changes have been made to your eCommerce platform?

When I first started, ten years ago, the e-commerce channel was all about the hit ratios on the platform and tweaking the dials. However, it has morphed into a much more complex channel and moved from a pure execution support platform to being one that also manages transfer and execution risk between the buy and sellside. This is driven by the depth and breadth of product offering over the timeframe. The role has also changed in that we provide more advice in terms of how to trade, which platform to use, trading protocols and the size of orders. Also it is not just about price but the timing of the execution. We have invested significant resources into adapting the technology and recalibrating the infrastructure to make it much more scalable in order to manage the migration of bonds and the increase in electronic trading.

Are you seeing more cross asset class trading?

The cross asset piece has become more important and we have moved away from being a silo driven organisation. It is more prevalent in the hedge fund community but increasingly long-only asset managers are migrating more fluidly across assets to chase alpha. One of the drivers is the low yield environment and the need to broaden their scope to generate returns.

To reflect clients’ needs, we take a much more co-ordinated approach and the feedback has been positive. We now have a generalist model that is overlaid with product specialists. We can also leverage the expertise of other people in the investment bank who have a broad understanding of asset classes.

How do you see the business developing?

I see the world becoming increasingly complex in terms of how you trade due to the regulations. There are now multiple channels, many more liquidity pools and protocols and as a result more decisions that have to be made in terms of the best ways to trade. This is why buyside firms are asking more questions, such as should they use electronic platforms or pick up the phone, or is it better to use central clearing or go bi-laterally. From a technology standpoint this means that they will need more connections within their order management systems.

In the past, there were limited options. Historically, a buyside firm would call a sellside firm and ask for a risk price and we would provide one either on the phone or electronically. We would be rewarded for the business but after the financial crisis things changed significantly. The risk price today is not always there and it is more acute in illiquid securities. The question then becomes who owns the execution risk? In some cases it has been transferred to the buyside. The decision-making has become more complicated, which is why we are providing much more guidance and advisory services.

How do you keep your competitive edge in this changing environment?

We think one of the ways we can differentiate ourselves is through our gamut of products but more importantly our services. In certain asset classes it is about the functionality you offer and it is an arms race in terms of technology. It means continually having incremental improvements and enhancements. However, we also have developed value-added services and thought leadership to help clients navigate their way through the increasing complexity and to mitigate the execution risk. The goal is that we become a valued partner.

© BestExecution 2014