Technology No Longer Offers a Competitive Advantage for Banks
Portfolio trading ranks well up on the list of financial services that owe their success - and their genesis - to gains in information technology. The speed and efficiency with which clients can bundle their portfolios and brokers can repackage, execute and report those transactions are a product of the connectivity between banks, their clients and a multitude of execution and settlement venues.
Jennifer Berg, head of portfolio trading at UBS Warburg, says: "Technology has always been a critical component of the portfolio trading industry. Technology allows us to screen, interpret and react to the ever-increasing speed and quantity of information available in today's global marketplace."
But it seems the technology that supports portfolio trading varies little at the banks offering the service to institutional investors. Most bank and brokers possess the basic execution capability, either in the markets in which they specialise or across regional and global markets.
They have also developed the proprietary and internet-based links that facilitates the secure, straight-through processing of the information they share with their clients.
Tony Nash, head of portfolio trading at Deutsche Bank in London, says: "The top brokers have pretty much the same system, so there is not a lot to differentiate them there. Technology is at such a level that it really isn't a source of competitive advantage for the biggest players."
Market professionals readily acknowledge that they are operating from similar foundations. And they add that even though most operate dedicated in-house IT departments, the pace with which innovations are replicated by their similarly equipped competitors renders those advantages as fleeting at best.
In most cases, smaller banks cannot hope to match the reach of larger brokers. But thanks to advances like FIX, they can source access to markets for their clients through those competitors via white-labelling, and in reciprocal relationships that enable larger banks to take advantage of their expertise or market niche.
Ken Kane, the London-based head of European portfolio products at Credit Suisse First Boston, says: "Because everyone basically possesses the same technology, it becomes more about a bank's ability to tailor the service to its customers." CSFB has spent the past 18 months building a portfolio trading platform.
"We have a state-of-the-art, flexible architecture that allows us to grow as the market grows. In Europe, the landscape is changing and that is forcing the technology changes at a more rapid rate. Systems have to be able to handle all the kinds of business that is out there."
Indeed, most market pros say that winning business is less about technology and more about what banks do with it. As a result, portfolio trading desks are working hard to develop and distribute automated pre-trade analytics and post-trade reporting functionality to their client base. …