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Multi-dealer platform Contineo has launched a new solution for private banks in a bid to fill a servicing gap in the structured product secondary market…

“Our success was built on a consortium framework that allows top tier institutions to join together to build a utility service that drives costs down and creates market efficiencies,” he said. “The commitment from SIX embodies our core principals of operating an open and shared network that benefits all financial institutions.”

Christoph Landis, Division CEO of SIX’s Swiss Exchange, added: “We are very pleased to bring our European leadership and experience to Asia through Connexor, our high-performance infrastructure for product data. We are looking forward to working with the leading structured product network in this region.”

“SIX brings new technology, expertise in the European structured product market and an important new business opportunity,” Munoz added. “Over the last year we’ve more than doubled the number of private banks and issuers on our network, enabling us to extend our post-trade data capabilities. SIX is a leading exchange provider in Europe and we look forward to incorporating their best in class features into our offering.”

Contineo is the first industry supported, open trading platform for private banks and wealth management firms to access issuers of structured products. It launched in January 2015 with the backing of most of Asia-Pacific’s key structured products houses and has built up a strong issuer base. Besides SIX, its current shareholders include AG Delta, Barclays, BNP Paribas, Goldman Sachs, J.P. Morgan, HSBC, and Societe Generale.

Connexor provides a range of services over the complete life cycle of a financial instrument and enables to meet regulatory obligations such as IRS 871(m) or MiFID II.

The centralized, standardized collection and maintenance of product data allows to simplify workflows and decrease the number of interfaces, providing issuers, data vendors and data recipients with better service.

SIX is expanding the Connexor service to standardize processes along the value chain and the lifecycle management of structured products across the globe.

From the first half of 2018, Connexor life cycle management infrastructure will be available to the customers in the Asian market.

The service allows SIX Swiss Exchange’s shareholders and clients to use set-ups from outside of Europe.

Contineo’s network of issuers, private banks and wealth management firms can also use the infrastructure of SIX to expand structured products of Asia market.

SIX Swiss Exchange division CEO Chris Landis said: “Today, we are very proud to announce the internationalization of Connexor and happy to see that more market participants around the world will enjoy the efficiency gains that our platform has already provided reliably to the Swiss marketplace.”

Contineo CEO Mark Munoz said: “This new partnership confirms our core principals of operating an open and shared network that benefits all financial institutions by reducing cost and increasing efficiency.”

Contineo is an industry supported and open messaging network, which interacts private banks and wealth management firms with issuers of structured products.

Similarly, Contineo CEO Mark Muñoz commented that most private banks in Asia are migrating to multi-issuer networks. “The market is still young for this type of technology but it is also the one that people are embracing,” he says.

For Milind Kulkarni, managing director and CEO at FinIQ, priority, even at the smaller banks, is given to productivity improvement and elimination of errors arising from overuse of email tools. According to him, however, mega banks are always expected to build their own in-house platforms. “In a nutshell, buyside banks without strong internal investment banks are the first ones to adapt MIPs,” says Kulkarni. “Then come the mid-sized banks and eventually the mega banks, which are selectively plugging external MIP components. Over next three years, we see everyone coming on board in some format or another. However, the second quarter of next year would be the cut-off point for experimentation and then, only the solid offerings will prevail.”

Regarding the current condition of the market, Muñoz points that “on the one hand, there is an imbalance between what the investment banks can support and what the private banks want to price and trade and on the other hand, certain investment banks are more technically capable than others, which creates the second type of imbalance.” According to Muñoz, there is a good number of investment banks in the market that can support the streamline protocol like FIX technology and others who cannot and are on email which creates limitations to what the private banks want.”

According to Wood, the management aspects of implementing a multi-dealer platform in a private bank are quite significant and this is where the solutions are not getting as much traction as people have expected. However, the transformation of the working practices and organisations take time and are a significant undertaking, says Wood. “In our experience, the multi-dealer platforms are relatively simple to set up and integrate into the structured product desks of private banks, but these platforms will become really transformational when integrated into the full client facing business of the private banks,” he says. “We have got the platforms up and running and the technology works. Integration is the next step but it is taking time.”

Additionally, according to Wood, multi-issuer platforms currently have “good and comprehensive” offerings. “Of course, there are things that need to be done but I don’t think the current capabilities in terms of underlyings and payoffs, for instance, would be a block to extending the platforms,” he says. Therefore, the full lifecycle of the service offering is where the platforms still have some work to do. “Banks including ourselves have got the full STP capability where you can place a trade on a multi-dealer platform and it will go through into our booking systems. You would get automated documentation, etc. all the way through the cycle,” he said. “The actual multi-dealer platforms themselves provide a pretty comprehensive service but they are limited to some extent by the product providers.”

Similarly, the addition of new payoffs and underlyings isn’t a critical step in the development of the multi-issuer platforms, according to Kulkarni. “Current electronic variations allow clients to express their investment views adequately well,” says Kulkarni. “Moreover, banks can’t possibly train relationship managers (RMs) on so many diverse payoffs.” However, on the products desk side, in the next few years the so-called non-flow structures, as they exist now, should turn into electronically priced products, according to Kulkarni. “But, for the RMs side, on average, one or two new payoffs is what I would expect per year,” he says.

Contineo is expanding its offering by adding bonus certificates to its network as “there is a demand for this type of product from the private banks side”, according to Muñoz. “We are seeing about a 25% increase in volume this year compared to last year,” says Munoz.

According to Wood, the volumes on the platforms are driven by products sold by private banks that are common in the Asia market today such as accumulators, equity linked notes, fixed coupon callables.

Regarding the issue of fragmentation, the Asian MIP segment remains dominated by two core multi-dealer platforms in the market – Contineo and FinIQ. “The choice between them comes down to what clients are looking for from the service offering,” says Wood. “It slightly depends on the need of the customer, but I don’t think there is a particular demand for consolidation.”

According to Muñoz consolidation is not necessary at this stage. “What is unique to Contineo is that we allow third parties, including other technological providers, media companies, etc., to connect to our platform,” says Muñoz, adding that the consolidation is happening at private bank level. “At a technology level for multi-issuer platforms, I don’t see consolidation because there is just a handful of companies that can provide this type of multi-issuer access.”

Structured products, customised inputs, customised targets, electronic pricing, electronic orders, multiple suppliers, multiple buyers, complex pricing request methods and hundreds of underlyings on shared cloud infrastructure is like an extreme use case for the finance and technology combo, according to Kulkarni. “Not all ventures can sustain the pressure of continuous software development, ongoing implementations and production continuity in continuous time,” says Kulkarni. “Products such as FXD, FX SP, FI bonds, retail EQ-linked are not on the radar of extreme productivity as expected from the EQD wealth MIP solutions,” he says. “Once those products join the equity structured products that would be dream state to us.”

The ability to do pricing and trade execution is a core competence for multi-dealer platforms, according to Muñoz. “The value-added that you get beyond that is how you can drive further efficiency through the full life cycle of the product and I think that is where we would see further innovation from the platforms over the next years,” says Muñoz. “The work we have done in the Contineo Consortium to normalize and standardize the products has brought some real value to the people using this platform because they have highly standardized products. We see the opportunity to do more of that work in the post-trade side as well.”

Wood believes that there are things the platforms can do to facilitate service standardization through issuers to feed that information into the private banks. “That brings efficiency through the private banks and through the issuing banks as well,” he says. “But it also brings the opportunity to improve the level of service that is provided to the end customers due to the more timely notification and better information passing between the groups.”

According to Kulkarni, post-trade isn’t as simple as price quotation exchange or order done/filled message. “The homogeneity of inputs and outputs is a fundamental requirement for any multi-party connectivity automation platform,” says Kulkarni. “For post-trade, unfortunately, the factors involved are too many. However, term sheet exchange is something we see being automated soon.”

Post-trade services have been the focus of Contineo for the last year, according to Muñoz. “We would be adding post-trade services to the network at the end of this year,” he says. “This is driven by our private bank clients and it is definitely something where we see Contineo to be needed.”

Automation will continue to “absolutely necessary” to bring the level of value needed in the market, according to Muñoz. “Nowadays post-trade notifications come from the investment banks at different times and in different formats and methods of communication,” says Muñoz. “The format is fragmented, the delivery method is fragmented, the notification types are completely fragmented. Therefore, there is a need to automate this process and to establish a standard in the market not just for processing but the publishing of this information to the private banks.”