Structured Products Europe Awards 2016
The growing use of standardised products means investors are increasingly looking for web-based platforms that can accommodate their pricing requests on a daily basis and within a short response time.
Many banks operate proprietary systems, but the Structured Products Europe Awards judges this year recognised BNP Paribas' Smart Derivatives platform for its capacity to cover all aspects of the client's experience, from pre- to post-sale.
"The bank's sales team continually meets with clients to demonstrate new features and to receive feedback that helps it create and develop features aimed at providing clients with more autonomy and flexibility," says one member of the judging panel.
Clients have voted with their feet. As of September 2016, the Smart Derivatives platform had seen 500,000 pricings conducted by its 600 active users globally. To cope with this high demand for pricing requests the bank employs parallelised grid processing, which allows users to simultaneously price a range of product variations according to specific parameters such as barrier level.
"Smart's multi-grid tool allows users to find needles in haystacks, and the best needle in a given time or market," says one wealth manager, adding that the time saved carries a financial reward.
In a climate where picking the right underlying can be a differentiator in developing products, the bank has also invested in machine-learning technology to support innovation. It uses the system to analyse client-behaviour history so that, in any given region, a client going through the process of selecting an underlying is provided with a list of underlyings that other firms have recently priced, if those firms have demonstrated similar pricing patterns to the user.
"We also use data crunching to offer client intelligence. Some of the data we collect through our various platforms can be useful for providing information on market trends – such as most-traded products and most-traded underlyings – to our clients," says Geoffrey Rodrigue, global head of stocks and index solutions at BNP Paribas.
Smart Derivatives has also simplified the process of backtesting, allowing users to run historical simulations of an instrument based on the historical spot-value time series for the underlying. This can support both product development and the sales process if a client wants to assess performance in a particular scenario. Users noted the tool's efficiency, speed and ease of use.
One user at a Swiss private bank was impressed: "In my daily business, I don't use backtesting as a favourable marketing argument, but it really helps to bring out computed data and stats to clarify certain situations and identify the most efficient payoff through different scenarios."
It is not only users who appreciate Smart Derivatives' strengths. By using open architecture, BNP Paribas can change elements of the platform to allow other banks to white-label it. That allows them to deliver the services to their own clients without affecting direct client relationships or their brand. The offering is proving increasingly popular, says Rodrigue.
"Our aim is that clients feel like they are using their own platform when they use Smart Derivatives. That is a challenge because there are different types of client," he says.
"So that objective of offering a customised, white-labelled platform was a key constraint as soon as we started building Smart Derivatives. And it's not only about branding and colours. You need to produce product descriptions for clients [that appear] as though they are produced by their own firm, for instance."
The banks are able to offer their own paper or that of BNP Paribas, which requires the platform to integrate with their systems in order to enable effective straight-through processing (STP).
"It must also be an STP process on the client side when they trade through our platform," says Rodrigue. "That's why we have the ability to implement Fix connections at a client's request, so that we automatically upload client trades and product definitions to their middle- and back-office systems."
The one-stop-shop nature of the platform and its ability to direct information quickly to users, banks and their clients was also noted by the judges as key to support the management of portfolio positions. This is important when collating and reporting information for the new regulatory environment.
"The [US regulation] Section 871(m) and [Europe's] Packaged Retail and Insurance-based Investment Products (Priips) regulation represent a strong challenge to investment banks and our clients in terms of being able to cope with their requirements," says Rodrigue.
"We aim to make sure that as soon as clients trade structured products through us we can offer the kind of service needed to match those requirements. For example, the automated production of Priips documents is a service we want to make available on our platform."
BNP Paribas retains a positive outlook for Smart Derivatives despite the general move away from single-dealer platforms towards multi-dealer options, arguing the two can sit side by side.
"When we look at the future market flows for structured products, you can see they will go through co-existing multi-dealer and single-dealer platforms. But where multi-dealer platforms will offer simple services and payoffs, single-dealer platforms are differentiated by a wider range of complex payoffs and high-added-value services," says Rodrigue.
The week on Risk.net, December 9–15 2017Receive this by email