Corporate reorganisation, acquisition and market expansion have all been part of BNP Paribas' structured products strategy over the past 12 months. In November 2014, the bank brought its equities, fixed-income and commodities activities closer together in a global markets division. It also acquired part of Royal Bank of Scotland's structured retail investor products and equity derivatives business, and its market expansion included establishing an onshore presence in Korea. But the key weapon in BNP Paribas' push into the region's structured products market is its Smart Derivatives platform.
Launched in Europe in 2012, Smart Derivatives started out as a web-based repackaging of the technology and functionality that the bank's in-house teams were using to structure and price products for clients. Since then, the bank has steadily expanded the platform's features and geographical range. Given the comparative size and still-evolving nature of the Asian market, it is perhaps unsurprising that many of its new features have been conceived within the region.
"Smart Derivatives offers a variety of payoffs and it is easy to adjust the variables and get a price right away without having to wait for sales to get back to us," says a relationship manager at a Hong Kong-based private bank. "Once we get a price, if we have a confirmation of an order we just have to click a button to trade. It helps us keep competitive."
BNP Paribas came later to the platform party than other issuers, but this gave it the opportunity to consider operational issues thoroughly when designing its offering. Smart Derivatives provides pre- and post-trade services, which other banks tend to offer outside of their platforms, as well as core pricing and execution functionality.
Pre-trade, the platform gives access to the bank's research and product ideas, as well as information on the most commonly priced underlyings. The pricing tool offers a wide range of payouts and the ability to customise structures, with automated generation of term sheets. Post-trade, all product details, valuations and documents are gathered in one place for easy access.
Smart Derivatives offers a variety of payoffs and it is easy to adjust the variables and get a price right away
Since launch, the bank has continued to expand the payout universe from flow products through to exotics. The platform now offers more than 3,000 underlyings across equities and commodities and covers more than 20 currencies.
Among the many user-driven enhancements that have come out of Asia-Pacific is a facility to meet Japanese and other regional clients' requirements, which allows users to customise every screen on the platform to support the variation in terms and terminology for products used across the region. A mechanism for solving for an unknown pricing parameter, which was initially devised for a Korean client, has subsequently proved popular with users in other regions as well.
"The extensive use of the platform by different stakeholders brings us valuable feedback that is driving our continuous improvement. This enables us to remain innovative and stay ahead of our competitors," says Frederic Dussaux, head of equity derivatives e-business and digital offering, global markets APAC at BNP Paribas.
A product structurer at a Taiwanese commercial bank that uses Smart Derivatives to obtain indicative prices for its structured products business says, "Smart Derivatives revamped the way we communicate with the sales team. Now we can easily get a price with all parameters with a simple click."
As well as enhancing the platform, BNP Paribas has extended its geographic coverage, recently adding Japan and Australia. Its figures reflect the pay-off. In the past 12 months, Smart Derivatives client base in Asia-Pacific has doubled and revenues for the region increased by 84%.
While these returns are positive for Smart Derivatives, BNP Paribas acknowledges the market's desire for multi-issuer platforms for standardised products. The bank is one of the six founding issuers of the Contineo consortium to create a messaging network for structured products.
Dussaux divides the structured products market into three - the request-for-quote vanilla products business; more innovative business with variation on standard products and value-added services that Dussaux calls 'smart flow'; and bespoke products. Multi-issuer platforms could serve the first segment; Smart Derivatives is targeted squarely at the smart flow segment; and BNP Paribas uses the Smart Derivatives platform internally to provide bespoke products to clients.
The bank is not resting on its laurels. New Smart Derivatives functionality under development includes a simple interface for users to send multiple quote requests simultaneously, a basket optimiser function designed to pick the best combination of stocks from a pre-selected basket of underlyings for a new structure, and tools that allow users to back-test new structures.
In the secondary market module, the bank is also adding automated alerts to enable private banks to flag events for their clients, such as a product nearing a barrier or maturity, and recommendations on future courses of action.