Kees de Koning (pictured), co-owner and founder of VI Company, has had a keen interest in the financial markets for as long as he can remember. He started investing from an early age, already trading stocks and shares in secondary school, together with Tim Oskam, who shared his passion for the financial world. Both De Koning and Oskam combined their financial knowledge with something else they really enjoyed doing: creating websites and making complex data accessible. In 2007 the pair launched VI Company. Back then, it was just the two of them, but nine years down the line the company has grown and now employs 26 people, all based in Rotterdam.
SRP caught up with De Koning to talk about the Dutch fintech firm's link with the structured products market, the change in customers' needs in areas such as trading systems and risk management, 24 hour trading and the gap between execution only and fund managers.
"We are really involved in the financial markets. We do a lot for Börse Stuttgart, especially for the Cats platform, where the Binck turbos for which UBS is the market maker are traded," says De Koning. "We work with issuers but also with the asset management side, distributors and trading venues. In short we deal with everything to do with investing, the assets or trading itself, so it is always related to the exchange."
The firm's employees are divided into five small teams made up of a designer and two or three developers. Each team is responsible for a project. On an average day four to five projects are built, according to De Koning. "Our teams have an incredible amount of know-how. They know what they are doing so you don't have to explain them about for example bid- or offer price," he says.
Many issuers of structured products have got plenty of ideas on how to keep their business competitive but they don't have the capacity to really develop these ideas because at the same time they have got their hands full with regulation. That's were VI Company comes in, says De Koning. "Our clients ask us: could you think about this problem, and eventually build, maintain and host the end result," he says. "We take a problem out of the hands of our clients. We offer them the know-how and the flexibility. If an internal IT cannot do this, we can launch an entire website in a couple of weeks' time."
De Koning has seen a change in customer needs in areas such as trading systems and risk management with straight through processing (STP), the initiative used by companies in the financial world to optimize the speed at which transactions are processed, the latest trend. "[STP] is performed by allowing electronically entered data to be transferred from one party to another in the settlement process without manually re-entering the same pieces of information repeatedly over the entire sequence of events," says De Koning. "What I have noticed and what clients notice too is that the dealing room is becoming increasingly less populated. More and more traders and also sales people are disappearing from the floor."
According to De Koning, the entire process is being automated. "It started with the simple products but increasingly with complex products too," he says. "It is completely outdated that I have to call a sales person who then has to coordinate with a trader what price I have to pay for a structured product."
Nine times out of ten the STP is accessed via an online platform where the retail or professional investor creates his own product, according to De Koning. "[The product] gets priced automatically, final terms are added automatically and subsequently it is carried out via a distributor. That is a trend which will last," says De Koning.
When it comes to trading systems De Koning thinks it won't be too long before we go to a 24 hour market. "It is really out of date in this day and age that you are only able to trade within a certain time window," says De Koning. "In the past it used to be 9am to 6pm. Now it is 8am to 10pm. I see a real demand for round the clock trading amongst our customers."
According to De Koning it has almost become a sport for providers such as Deutsche Bank and Commerzbank to issue as many turbos as possible on different leverage factors or on different stop-loss levels. "They have issued a product on every key point of the Dax. Why? Because it is of course relatively cheap to issue products at the moment," he says. "I think that in a few years' time, with your broker, you are not going to select a product, because it is very much driven from the offering of the bank, but you say - just like the CfD brokers do - I want the Dax and I want leverage factor 5. What is the price? Who are the issuers?" De Koning believes a number of providers are already looking at this. "That is something CfD providers do really well. That is not product driven. It just a case of: what do you want and here you have it," says De Koning.
Trading and risk management are indeed important issues, according to De Koning. "In the past, if you were doing a project, or if you started building something for a client, you would have long discussions about all kinds of specifications which needed to be included in the website. Then you started building and six months down the line the website would be ready," he says. "What we see now is that people want to enter the market in a very short time with a small product. That is called a minimal viable product (MVP). You can work out a certain concept or idea within a few weeks and then test this in the market and with the results you can then really try and improve your product."
Risk management is another area of significant changes which will impact the asset management market. "[In asset management] on the retail side, because the interest is almost zero, people are looking at alternatives for saving," says De Koning. "If you visualise this, on the left hand side you have the real execution only, Alex, Bink and other brokers and on the right hand side you have the fund managers. There is a gap between execution only and the fund managers. That gap is being filled by companies such as Betterment or Nutmeg, for example. Those are the kind of parties which guide you to a portfolio which fits your personal situation. Robo advising is also part of that. It is justified that this is a very popular theme at the moment."
Robo-advisers, but also execution only plus as it is called by the Netherlands Authority for the Financial Markets (AFM), are being used to push exchange traded funds (ETFs), according to De Koning. "That's easy. I think it is a challenge for issuers to offer other products in such a manner too, to make them simple, easy to understand, or to explain them in a way that these parties can also start using structured notes for their investment targets," he says. "Because that is perfectly possible. These are good products to offer 100% capital protection."
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