Trends in e-Commerce and Electronic Trading 2012

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‘e’ relates to e-commerce and electronic trading. e-Trading refers to trading through electronic platforms including direct connectivity and application programming interfaces (APIs), multi-dealer platforms (MDPs) and single-dealer platforms (SDPs). ‘e’ is emerging from a market that was traditionally voice-based. Across asset classes and types of organisations, this transition takes different paths. The buyside and sellside have distinctive motivators and prerogatives when pursuing ‘e’.

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The main objectives of ‘e’ trading are:

  • e-Servicing – ease of access, personalised communication, leveraging client data and increased efficiency, responsiveness and security of interactions.
  • Value-added pre-trade activities – research and news, pre-trade risk analysis, client services and sales.
  • Correctly value execution and transaction costs – automated pricing dependent on client tier.
  • Balanced cost reduction – by automating manual processing for standard orders, eliminating costly bottlenecks and reducing operational error.

The “electronification” (by notional amount) of the markets varies greatly by asset class:

  • Marginally electronic (<20%): Structured products
  • Moderately electronic (20%-35%): Commodities and swaps
  • Highly electronic (35-60%): Bonds
  • Mainly electronic (60%-85%): FX and money markets
  • Almost fully electronic (>85%): Cash equities, listed futures and options

In all cases, the proportion of electronic tickets versus voice transactions is on the increase, both for cash products and derivatives.

The Current Environment
Business engagement with the e-commerce offering is driven from multiple directions, including a desire to increase market share, to improve P&L, to protect the franchise and to reduce costs per trade. Among these drivers the greatest interest lies in protecting the franchise. Institutions invest in e-commerce to maintain their position against market competitors.

Regulatory changes in the EU and US will have varying impacts on market structure, pre-trade, execution and post-trade processes. Market structure developments imposed by regulators will have the greatest impact on ‘e’, as products that are currently less liquid and less transparent are pushed to electronic trading.

The Trade Lifecycle
Considering the three core aspects of the trade life-cycle (pre-trade, execution, post-trade), with respect to e-channel preferences it emerges that SDPs are mostly preferred for pre-trade functionality, but clients perceive there to be a weakness in pricing. The preference for SDPs is driven primarily by client sales, services and analytics as well as cost.

Based on our investigation of buyside institutions we identify the value associated with each functional component of the e-commerce lifecycle, as well as the switching costs of moving to another broker-dealer for that piece of functionality. This provides a measure of the competitive differentiators from a client perspective.

Developing an effective e-commerce strategy requires a client-centric strategy. It has to be adopted in an environment that is predominantly product-centric. As e-commerce consists of a management and a technology strategy, only through a centralised e-commerce strategy and a standardised technology approach alongside an integrated management policy, the value proposition can be achieved.

Published on: 19 Jun, 2012

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Trends in e-Commerce and Electronic Trading 2012 – Table of Contents

  • 1.0 The Importance of e-Commerce
    • 1.1. Transition from ‘Voice’ to ‘e’
    • 1.2. e-Commerce Grows Beyond Execution
    • 1.3. e-Commerce is Multi-channel
  • 2.0 e-Commerce Evolutionary Path Has 5 Stages
    • 2.1. Listed Product Markets are More Mature in e-Trading
  • 3.0 e-Commerce Is No Longer an Optional Capability
    • 3.1. ‘e’ Is a Source of Profitability
    • 3.2. The Drivers for Investing in e-Commerce
  • 4.0 Managing the Impact of Regulations on the Trading Process
    • 4.1. Summary of the Upcoming Regulations
    • 4.2. Impact of the Upcoming Regulations
  • 5.0 Upcoming Regulations Change the Business Model for Non-listed Products
    • 5.1. Current Concerns Around Regulations
    • 5.2. Adaptation to the New Regulatory Landscape
    • 5.3. Regulations Lead to Changes in the Business Model
  • 6.0 Preparing for the New Competitive Landscape
    • 6.1. Priorities for Clients Are Changing
    • 6.2. Competitiveness Is Becoming Reliant on Post-trade Services
  • 7.0 Market Readiness. e-Commerce Is Maturing
    • 7.1. Single Dealer Platforms Were Developed in 3 Stages
    • 7.2. Execution and Post-Trade Have the Best Coverage
    • 7.3. The e-Commerce Offerings are Concentrated in FX
    • 7.4. Competitiveness Should Be Built on 3 Pillars
    • 7.5. Centralised e-Commerce Management Drives Competitiveness