Contineo: ‘Too many players will add to the fragmentation of the market’

Following the hard-launch of Contineo which went live at the end of June with its multi-issuer structured products platform and messaging network, SRP spoke to the firm’s chief executive Marc Muñoz (pictured) about the platform’s short-term goals, the value of multi-issuer platforms in the Asia-Pacific region and the challenges ahead in a segment that is getting crowded with a myriad of competitive outfits such as Deritrade, which was launched in March 2014; the multi-issuer investment products distribution system (IPDS) launched by Leonteq, DBS, Avaloq and Numerix in Q1 2015; and the FinIQ EQ Connect platform launched by the specialist software provider in association with Thomson Reuters in December 2014.

Why have multi-issuer platforms become so critical in the Asia-Pacific market?
From a market perspective we are seeing a surge in volumes and volatility, and significant activity in the structured products segment. However, what makes the region a unique market is the pricing pressures issuers and distributors had to face and the need to find ways to lower the cost of issuing and be able to distribute products more effectively. In that environment a multi-issuer platform makes complete sense, as issuers are now moving towards a set-up that allows the sell and buy-sides to be faster, wider and better at providing pricing and distributing products. Contineo was launched as a hub providing connectivity between the counterparties (issuers) and private banks (distributors).

Has regulation anything to do with the current market environment?
Regulators have pointed out many times that the structured products market has been governed by an opaque model, and an independent platform such as Contineo is the best way to address any issues around transparency. Contineo is not an issuing bank but an independent network provider and we have been fortunate to engage with regulators in Singapore (MAS) and Hong Kong (FSC), and have an open discussion about how a multi-issuer platform can bring transparency and value to the investment process. Contineo will also be able to bring clarity as of the size of the market and what kind of products are being demanded and sold in the retail segment. The feedback we got from regulators was very positive as they saw straight away the value of having a centralised network.

Were there any conflict of interests around the fact that the platform is backed by a number of investment banks?
There are no issues. In fact the regulators were very knowledgeable about the aim of the platform and were very supportive for a number of reasons. Regulators are well aware that price discovery and trading of structured products over the phone was not an efficient way of operating in this market as it’s prone to error. They saw our standardised network as a very good way to address those issues.

What happens to those banks that invested in their own single issuer platforms? Can single issuer platforms be plugged into Contineo?
The platform was designed to provide connectivity and to accommodate different counterparties providing pricing but we have an open mind and we believe that over time there will be an integration of single issuer platforms. However, at this stage, single issuer platforms are still very viable for non-standardised and complex products. The platform segment of the market is pretty much in its infancy and we expect significant development at all levels in this segment over the next three to five years. Contineo is flexible enough to provide connectivity to any single issuer platform when the time is right.

Do you see these platforms eventually being accessible to the self-directed investor?
There are a number of issues around providing access to this kind of set-up to retail investors. Regulators have shown concerns and there are issues of suitability that private banks would have to address. At this stage I don’t see [click and trade] platforms opening up to retail clients. Suitability and compliance are at the top of private banks’ agenda and the role of relationship managers and advisers remains an important one when dealing with the mass market. At this stage, private banks are interested in accessing tools to streamline the pricing/trading process.

We now have four different platforms in the APAC structured products market. Is this segment getting crowded? Will there be consolidation in the near future?
We believe too many players in this segment will add to the fragmentation of the market which was the original aim of launching Contineo. However, we want to look at these developments and platforms as something that complements what we are trying to do with Contineo. Our aim is to provide access from a neutral standpoint and in a standard format so that everybody can benefit. Some of these platforms are not set up from a multi-issuer perspective, and that seems to be a small component of what they do, and some of them can even push their pricing above any other issuer plugged into their platform which does not make it a competitive space.

Contineo Ltd launched in January 2015 as the industry’s first open messaging network to provide private banking and wealth management firms with greater access to equity-linked structured products. The platform has backing from a consortium comprising technology firm AG Delta and six investment banks – Barclays, BNP Paribas, Goldman Sachs, HSBC, JP Morgan and Societe Generale Corporate & Investment Banking.