A consortium of banks including JPMorgan, Goldman Sachs, HSBC, Barclays, BNP Paribas and Société Générale Corporate & Investment Banking (CIB), and technology firm AG Delta are set to launch today a new open messaging network in a move to provide greater access to equity-linked structured products for private banking and wealth management firms.
The new platform will be managed by Contineo Ltd, which is backed and funded by the consortium to support the network and technology. The new platform, which will be led by technology veteran Mark Muñoz as managing director, will allow subscribers to access their counterparties through a web-based interface and a set of open application programming interfaces (APIs).
Singapore-based technology firm AG Delta will provide the technology infrastructure of the platform, which is expected to go live early this year once the process of registration of private banks and connectivity to issuers has been completed.
“We don’t have any private banks registered yet because we didn’t have the legal structure to do that, but we have received the interest of a number of private banks,” said a source close to the consortium. “We’re pretty confident the private banks we have met see the value of the new platform as it is a facility that will provide liquidity from day one and effectively lower their cost and give them access to more products.”
The source said that the launch of a multi-issuer price discovery platform in Asia responds to the needs of the wider market. “This is the last asset class that has a large enough investor base and turnover to go completely electronic,” he said. “We’ve seen it with equity and equity derivatives, with futures and to some degree with fixed income, so it’s a great opportunity to bring that level of technology to the APAC structured products industry.”
According to the source, simplifying the connectivity among banks and investors is a major step to bringing structured products to the mainstream. “This will not only create efficiencies for issuers and providers, but ultimately it will bring further transparency to the market as well as speed and accessibility and therefore lower prices to the end investor,” he said.
The fee structure of the Contineo platform will be based on an annual uniform licence fee that will be charged to both the sell-side as well as the buy-side.
“We are moving away from some of the traditional models that have been used in the past where technology is given away for free because they are charging bps per transaction,” said the source. “We wanted to make sure that our approach would fit with both the sell and the buy-side and would make clear the value of connecting to a multi-issuer platform.”
Another senior source involved in the platform told SRP that the new platform is an interesting development for the industry in Asia Pacific but that the added value is “really” to be able to bring standardisation to the market.
“Currently, private banks in APAC understand structured products differently, quote/price structured products differently and Contineo will bridge that gap by bringing the banks together and creating a simplified and unified understanding of the products for the clients,” he said. “We believe this could reshape the market in APAC and make it more understandable for the end investor as well.”
The source added that the technology partner AG Delta was chosen through a very rigorous process. “AG Delta had an edge because the platform was already there and it was a question of leveraging the connectivity of the platform,” he said. “The challenge wasn’t to build a platform but to find a partner for the connecting banks to get their systems ready to be plugged in to the platform following standard protocols in a uniformed way.”
In relation to the competitive landscape and how the new platform will co-exist with Vontobel’s multi-issuer platform deritrade, both sources see it as a healthy sign.
“The most important difference with deritrade is that Contineo is not a bank,” said one of the sources. “Deritrade is a proprietary banking platform offering and Vontobel’s market-making sits always on top. Contineo is fully neutral and cannot provide any pricing because it does not issue products.
Contineo has been in talks with the regulator so that the platform could be built within the right framework to meet regulatory requirements, the source said.
“We are following a similar model to other platforms in the market,” he said. “We want to remain an open platform for others to connect to and direct competitors may also see the value of connecting to our platform to tap into other APAC markets.”
In the meantime, Vontobel’s deritrade remains unimpressed as it continues to make inroads and develop its strategy in the APAC market following the recent appointment of Anup Gupta as Asia Pacific head of multi-issuer platform to drive Vontobel’s efforts in the market.
Gerrard Meier, head of multi-issuer platform at Vontobel, told SRP in a recent interview that he was confident deritrade would become the electronic platform of choice for structured products participants as “a fully automated distribution channel”.
According to Meier, the news about the new platform has brought the discussion on the agenda of the decision-makers but it was important to stress the different dimensions of the offering beyond just connectivity of pricing ,which is just one element of the deritrade offering.
“Deritrade offers full automation on execution, document generation, post-trade services, repayment, etc. I don’t think there’s a comparable offering and issuers have a new opportunity to bring their prices and services directly to the point of sales, i.e. the RM – a better service at radically reduced cost,” he said. “When price discovery is transparent in the market, as well as the revenue side (private banks have to disclose distribution fee to clients), what is left to build a competitive advantage is reduced operational costs and increased advising quality.”
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