The UK fintech is making inroads into the structured products markets with its SaaS platform via multi-issuer platforms and seeking to capitalize on the market’s shift towards customization.

In the second part of an interview, IVM Markets co-founder and CEO Volodymyr Gubskyi (pictured) talks about multi-issuer platform adopting search and recommendation tools to fine tune the pre RFQ process and how customization will drive further market growth.

We believe that every single distributor will become a multi-issuer platform over time - Volodymyr Gubskyi 

“We believe this kind of optimisation will be eventually done for every single transaction,” said Gubskyi. “Once you find the two structures out of the thousands that you like, you do one click on the IVM platform that will link you up with the multi-issuer platform to run the final auction between the banks.”

Gubskyi notes that “several prominent multi-issuer platforms are already our clients” because it makes sense for them, and that distributors are also looking to adapt IVM’s software to deliver search and recommendation tools to their clients to find optimal ideas.

“We believe that every single distributor will become a multi-issuer platform over time which means that distributors will be buying from the same issuers using the same technology at the same speed,” said Gubskyi.

“The differentiating factor for those distributors will be in human augmentation as with this kind of analytics humans will be able to make the final decision based on the curated data that was presented to them but also taking into account the specific preferences of their specific end clients leading to varied outcomes and differentiation.”

Gubskyi believes that by leveraging IVM’s AI and its optimisation and analytics engine to do the work for distributors, they will be able to focus on making decisions and choices that match up with specific client’s preferences.

“Issuer structured products portals (single-issuer platforms) are not made for idea generation but aimed at connectivity and trading,” he said. “We believe issuer portals will be decommissioned at some point because it's just much better for them to supply an API to all the multi-issuer platforms without having to manage a single issuer platform.

“When you have multi-issuer platforms it just makes no sense to have humans using 5-10-20 single issuer portals.”

IVM is not targeting the bulge bracket banks as its primary client base is the buy-side – distributors, multi-issuer platforms, brokers, asset managers, midsize banks and insurance companies.

“We also have an interest in independent issuers,” said Gubskyi. “The idea is for them outsource the AI based stocks research and optimisation and analytics to a software firm so that the independent issuers can focus on doing deals and managing risk (both of which also require heavy in-house IT investment). There are not that many independent issuers, but there are probably 100,000 active buy-side providers out there.”

Self-service

IVM software is already integrated on multi-issuer platforms which is enabling their clients (such as brokers) to access the firm’s full package – optimising IVM and using a multi-issuer technology to run a multi-issuer auction without needing to be multi-issuer platform.

“But if you do have an issuance platform, we can integrate with your multi-issuer platform so you can do the final trade. This is the future in our opinion. A distributor can find that one optimal idea out of thousands of iterations in one minute on the IVM user interface UI and then as a second step the API is created so the distributor can send it “one click” from IVM to the multi-issuer platform for final auction,” Gubskyi said.

IVM’s software can also be made available to advisors through distributors, so that advisors can generate the optimal ideas on a self-service basis and send the reverse inquiries to distributors.

“Distributors already use IVM for prospecting and bringing more advisors to their platforms,” said Gubskyi, adding that advisors are interested in the “analytical journey – that a comprehensive and data driven search was done to find the best idea with higher upside and lower risk”.

The advantage of this set up is that “you can demonstrate this journey in IVM” instead of pricing four or five variations in a few single issuer portals and immediately moving to buy the deal.

“Once the advisor signed up to the distributor the next step is for the distributor to give logins directly to the advisors for self-service,” said Gubskyi. “This could be the next stage of our evolution, although right now we are mainly used by distributors.”

Driving growth

The structure products market is already larger than that of hedge funds and ETFs combined with over US$10 trillion outstanding, notes Gubskyi.

Research indicates that pension providers should have structured products in their model portfolios - Volodymyr Gubskyi

“According to our research the market is growing. The reason why this market is growing is that people want personalised investments. They don't want to buy what is available on the shelf. They want to be able to specify their needs and have products personally created for them –the level of upside, the level of protection, etc.,” he said.

Structured products are synergetic with ETFs and SMAs as suggested by capital inflows into ETFs and structured product in the UK market which have been growing in parallel for several years, taking away market share from stocks and actively managed funds.

“This makes sense because with an ETF you get standardisation and with structured products you buy personalisation and customization,” he said. “We also see an interesting dynamic as more structured products are using ETFs as underlyings. There's big demand for ETF coming from the structured product space as well.”

On the SMA part of the market, structured products are being used as institutional products and are being allocated by certified distributors through advisors to retail and high-net-worth portfolios alongside stocks and bonds, according to Gubskyi.

“Research indicates that pension providers should have structured products in their model portfolios (inside the SMAs) because with structured products alongside stocks and bonds, these products can cater to the needs of different risk-return profiles,” he said.

“The IVM platform can also help in this space as those pension fund managers can decide what to buy based on the different risk-return profile combinations.”