Following the launch of on-exchange structured certificates platform Wunschzertifikat by Commerzbank, SRP spoke to Philipp Kalb (pictured), head of product management Primegate at the German bank about the challenges ahead and why the new venue could be a game changer in the German certificates market, and beyond.

Commerzbank cannot check the liquidity of an investor on his account nor do any regulatory and compliance checks, because Wunschzertifikat is on a public platform - Boerse Stuttgart, so investors can only book the trade, and trigger the issuance but not trade products, according to Kalb.

"What we have done is to decouple the need for backend integration with a banks- or online-brokerage platform by utilising the existing connections and the capabilities of an exchange," says Kalb. "We have been working with Boerse Stuttgart to optimise the latency between the creation of a product and making it tradable on the exchange. This new approach has lowered the time to just a few minutes between the product being issued and the listing for trading."

For such an approach to make sense it was important to make sure that the bank was not adding hurdles or a complicated processes to access the platform "as we see it in the market currently", according to Kalb.

"That's why we decided to make the process as simple as possible for the end client," says Kalb. "Potential investors can now publicly price structures according to their needs and we have only included security features to make sure those using the tools are not robots, and have to prove they are humans by entering their mobile phone number."

Once an investor enters the parameters of the product it wishes to trade, the system sends a text message code to the end client which can then be used to trigger the issuance process. "This way we prevent others from miss-using the platform and make sure each user is identified as a human being," says Kalb. "This process also allows us to provide [investors] with a link to all the product documentation (final terms, PIB, ISIN ...) and his/her unique WKN/ISIN for the new product via text message."

Wunschzertifikat is testimony to the bank's capabilities and desire to innovate in the market, according to Kalb. "We have tested the platform extensively, and we are working to expand it by adding new issuers and product types," he says. "We have also set up the platform in a way that all issuers are provided a level playing field. All issuers can price and be in competition for each and every issuance done via our platform."

The added value offered by the Wunschzertifikat platform is the price comparison for products from different issuers alongside other services such as the listing of the product on exchange and the document generation capabilities. "We also believe that if you have different fees for different issuers in your platform then the added value for the client with regards to a real price comparison is gone, and that is why we decided to partner with a stock exchange as it would provide us with a completely regulated venue that treats all issuers equally and addresses any conflict of interests issues we see in issuer and multi-issuer platforms. This approach is unique for the end investor, as well as transparent and neutral for the issuers."

The launch of the platform has now given way to a marketing campaign aimed at increasing awareness among investors and bringing in other market makers. "We are now promoting the platform and we expect this to drive new activity in the market," says Kalb. "We expect that the marketing campaign will increase awareness in the market and that this approach will establish as an additional way of how products are issued in the German market."

Wunschzertifikat can be considered the third generation of such platforms, says Kalb, adding that "end investors are often struggling to find a product that perfectly matches their needs".

"Our platform enables issuers to move from an offer-oriented approach to a demand/solution-oriented market fully straight-through processing (STP)," says Kalb. "At Commerzbank we believe that issuing and trading platforms can only succeed if all issuers are treated equally."

The bank is in talks with other issuers in Germany as well as looking at new opportunities in other markets. "We think this approach can also work in other European markets," says Kalb. "We have received feedback from players in other markets and the response has been very positive. Some exchanges in Europe have comparatively high fees for product issuances."

High prices and related inefficiencies for issuers in the structured products market are key aspects and explain why some markets continue to be dominated by over-the-counter (OTC) transactions, according to Kalb.

"We believe that with time our approach will benefit issuers and investors alike," Kalb says.

Recent developments in the European structured products electronic trading platform segment include the launch of SG Markets Structured Products by Societe Generale (SG) in May 2016 after it closed down its Alpha electronic trading platform.

Swiss bank Vontobel has also been at the forefront of developments in the multi-issuer platform segment and opened its Deritrade platform to third parties in Q1 2016 by bundling its global digital offering which covers the creation and distribution of structured investment solutions and the expansion of its front-to-end offering for insurers and financial services providers via a 'white labelling' service. In September, the Swiss bank expanded its Mobile Private Banking app as part of a number of initiatives around the digitalisation of banking functions which included the launch of Deritrade SmartGuide aimed at bolstering the bank's B2B4C offering by combining advisory, pricing, structuring/engineering and trading functions in one place. The Swiss bank also went live with its mein-zertifikat.de, a new dedicated open digital platform for structured products in Germany, at the end of August.

Other investment banks active in the structured products market which have focused their efforts in the click and trade segment over the last few years in Europe with differing grades of success include UBS (EQ/FX Investor), Credit Suisse (Spirit), BNP Paribas (Smart Derivatives), and JP Morgan (Nexus).

Some of the first investment banks to develop electronic platforms for structured notes are no longer active in the market such as RBS (MarketDirect) or have restructured its operations such as Barclays (Barx IS) which shut down its European Bmarkets platform in December 2016.

Related stories:
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HSBC joins Vontobel's German platform

Vontobel launch digital structured products platform in Germany

Commerzbank's SP issuance, market making and Primegate to be ring-fenced under restructuring plans