To share or not to share: The single- vs. multi-dealer platform choice
June 2016
Overview
Most sell-side financial institutions consider their front office a key point of differentiation. To this end, they invest heavily in proprietary technology to create an advantage. But it may not be sustainable; some shared technology utilities could make their investments obsolete. We look at the trends spurring firms to rethink their client-facing technology and suggest that single- and multi-dealer platforms can co-exist at the same institution.
Why capital market firms use SDPs
CTOs and CIOs at capital markets firms are trying to offer their clients more value by replacing legacy portals with gateways that make it easy to navigate a bank’s entire range of offerings. These fully integrated “one-stop-shop” platforms are the latest incarnation of the single-dealer platform (SDP), evolving from execution-only trading applications to those featuring sophisticated pre- and post-trade capabilities.
Unfortunately, firms haven’t been seeing the hoped for returns on these investments. Why? Because while these SDPs address a financial institution’s desire to hold onto clients, banks may have difficulties adapting to their clients’ changing demands.
The rise of utilities like MDPs
These days, far more customers want basic and low-cost products. An all-encompassing SDP has value, but this option may not be enough to maintain client brand loyalty. With parts of the investment banking value chain looking increasingly like utilities, delivery platforms could offer more value as a series of bite-size “apps.” These apps can be developed internally using proprietary technology or externally by peers or other third parties using shared technology. This approach will enable banks to plug-and-play apps as needed and to improve their agility in meeting clients’ changing demands.
Getting the best of both
So what’s the best way forward? Most financial institutions will benefit from a hybrid platform that mixes single- and multi-dealer apps.
But the right combination will differ for each firm based on its own unique capabilities and market positioning. To determine the proper mix, we recommend a three-step process:
- Step 1: Deconstruct your existing delivery platform into constituent apps and evaluate the fit gap of each app against SDP and MDP profiles.
- Step 2: Set priorities for remedial actions.
- Step 3: Design a hybrid SDP/MDP model after having determined where you add value and where you don’t.
CIOs and CTOs will want to share technology using an MDP that doesn’t allow their institutions to add anything unique to the platform. This approach will enable banks to focus on areas where they do add real value using an SDP. It also makes the most of their technology investments in a competitive market.
The rise of utilities like MDPs
These days, far more customers want basic and low-cost products. An all-encompassing SDP has value, but this option may not be enough to maintain client brand loyalty. With parts of the investment banking value chain looking increasingly like utilities, delivery platforms could offer more value as a series of bite-size “apps.” These apps can be developed internally using proprietary technology or externally by peers or other third parties using shared technology. This approach will enable banks to plug-and-play apps as needed and to improve their agility in meeting clients’ changing demands.
Getting the best of both
So what’s the best way forward? Most financial institutions will benefit from a hybrid platform that mixes single- and multi-dealer apps (see figure below).
But the right combination will differ for each firm based on its own unique capabilities and market positioning. To determine the proper mix, we recommend a three-step process:
- Step 1: Deconstruct your existing delivery platform into constituent apps and evaluate the fit gap of each app against SDP and MDP profiles.
- Step 2: Set priorities for remedial actions.
- Step 3: Design a hybrid SDP/MDP model after having determined where you add value and where you don’t.
CIOs and CTOs will want to share technology using an MDP that doesn’t allow their institutions to add anything unique to the platform. This approach will enable banks to focus on areas where they do add real value using an SDP. It also makes the most of their technology investments in a competitive market.
The rise of utilities like MDPs
These days, far more customers want basic and low-cost products. An all-encompassing SDP has value, but this option may not be enough to maintain client brand loyalty. With parts of the investment banking value chain looking increasingly like utilities, delivery platforms could offer more value as a series of bite-size “apps.” These apps can be developed internally using proprietary technology or externally by peers or other third parties using shared technology. This approach will enable banks to plug-and-play apps as needed and to improve their agility in meeting clients’ changing demands.
Getting the best of both
So what’s the best way forward? Most financial institutions will benefit from a hybrid platform that mixes single- and multi-dealer apps (see figure below).
But the right combination will differ for each firm based on its own unique capabilities and market positioning. To determine the proper mix, we recommend a three-step process:
- Step 1: Deconstruct your existing delivery platform into constituent apps and evaluate the fit gap of each app against SDP and MDP profiles.
- Step 2: Set priorities for remedial actions.
- Step 3: Design a hybrid SDP/MDP model after having determined where you add value and where you don’t.
CIOs and CTOs will want to share technology using an MDP that doesn’t allow their institutions to add anything unique to the platform. This approach will enable banks to focus on areas where they do add real value using an SDP. It also makes the most of their technology investments in a competitive market.
Of further interests
