Structured Products Americas Awards 2016
The BNP Paribas Smart Derivatives platform, which allows firms to identify, price and trade structured products, has garnered considerable popularity with US clients. The bank reports that a third of its overall number of trades over the past 12 months were conducted via click-and-trade, where clients structure and execute the trade on the platform themselves, or click-and-trade-lite, where clients structure the trade and the bank clicks a button to execute.
"The previous year that was 14-15% and the year before it was 2–3%," says Franck Bertoneche, head of cross-asset distribution for North America at BNP Paribas in New York. "A certain number of clients put north of 80% of business flows through Smart. We still talk to them on the phone a lot, but when it comes down to executing, their work goes through the platform."
The platform's most-traded products are autocalls linked to either a single stock or a single index, but an expansion strategy has broadened the number and range of firms using Smart Derivatives. A recent partnership with Cais, the US-based product platform that connects investment advisers and broker-dealers with alternative investible products, has boosted Smart's reach considerably, allowing it to spread beyond its initial target market – US broker-dealers catering to foreign investors, known as offshore or 'Regulation S' business – into US investment advisers.
"Thanks to our strategic partnership with the Cais platform we are now targeting registered investment advisers," says Thomas Guilhot, head of secondary market trading for North America and eBusiness project manager for Smart at BNP Paribas in New York.
With 65 new firms added, the platform has almost doubled its existing base, and its biggest individual user has come via Cais.
"New users often look at buffer notes and see structured notes as an equity replacement strategy, where they are seeking to enhance their return while reducing their risk profile. They are taking things they already own, such as exchange-traded funds (ETFs), indexes or a basket of stocks, and then placing a buffer on it and seeing what kind of enhancement they can get," says Raul Perez, head of the retail structured products group at BNP Paribas in New York.
Smart Derivative's breadth of functionality has also won over existing users. One issuer, who had at times struggled with the changing risk profile of instruments, cited it as the best platform in the market.
Smart Derivatives allows advisers to be more tactical when markets move in their favour. They are experimenting more with underlyings and structures
Raul Perez, BNP Paribas
"[It] offers a lot of choice in terms of what you can price. [It's] probably the most robust tool we have," says the issuer. "We have tools from two other banks. Of those three we see that Smart Derivatives is much more stable and offers the best pricing engine in terms of what you can and can't price."
That was invaluable to users during the sell-off in August 2015 and again in early 2016, when the secondary side of the platform allowed users to see where markets were trading, making it easier to handle turbulent markets.
"With Smart, the products that are likely to be called soon are right in front of you. The information is right there, so it's very easy to get live prices," says a bank user of the platform.
"A lot of our clients were asking [during the sell-offs] for indications of where they could settle, because they were panicking a little bit. So the platform was very good in that situation."
BNP Paribas says clients have used the platform even more during choppy markets because it enables them to review products more quickly without taking up a colleague's time.
"Smart Derivatives allows advisers to be more tactical when markets move in their favour," says Perez. "They are experimenting more with underlyings and structures."
For BNP Paribas, developing the technology has benefited from the improvements made during the integration of Royal Bank of Scotland's structured products business, acquired 18 months ago, which gave it a significant boost in terms of computing power and resources.
"We made our infrastructure as robust as possible to bring that business in-house, and we now benefit from that infrastructure in our day-to-day business," says Bertoneche. "It forced us to take steps that we otherwise didn't have to do."
The bank has also invested more conventionally in product improvements at the front end, improving the way the platform looks and feels to clients. It also made a significant investment in back-end hardware to boost the platform's computational power, which allowed it to provide effective back-testing support, for example.
Although it can be hard to unpick the exact costs for a platform that is also a business, a rough estimate puts the overall investment in Smart in the tens of millions of dollars.
But BNP Paribas' Guilhot says it is worth the expense. "We strongly believe that in the future technology will be key to addressing all regulatory requests and our clients' changing requirements as they evolve from more transactional to more analytical value-added services."
The week on Risk.net, September 8-14, 2018Receive this by email