Digital Investment Banking

digital money

A report by GreySpark Partners on digital investment banking and the relevance of single deal platforms analyzes the position of various banking platforms from the point of view of professional investors in the industry. The targeted readers of the report are mainly buy side readers who want a basic evaluation of a buy side methodology in light of various ecommerce solutions.

The report sheds light on the fact that although electronic investment and trading has become widespread and immensely popular in worldwide financial markets as well as various asset classes, the increase in complexity in regards to electronic solutions of investors provided by the sell side. In actuality, when you look at it from a broader perspective, most electronic methods and approaches haven’t really changed at all. Although the technology has evolved since the pioneering times, but today, we don’t see any significant changes.

In a majority of instances, SDPs (single dealer platforms) have emphasized on research and implementation for a particular asset class. This caused investment banks worldwide to overwhelm their clients with a plethora of investment interfaces and platforms and online applications which resulted in clients getting even more confused and not to mention, the efficiency factor significantly dropped.

Digital Investment Banking & the Relevance of Single Dealer Platforms

Single dealer platforms have now come to a critical crossroads and now they are forced to either consider providing clients a more feature-rich service, that too in a reduced form factor, or they can choose to shift their entire focus and emphasis on their client’s productivity in investment as well as both efficiency and experience. Moreover, it is also important to realize the power to choose who you want to trade with is moving away from most banking institutions and coming towards the buy side.

Now, investors have more freedom to choose how they want to invest, where they want to invest and with whom do they want to invest. In regards to this situation, GreySpark reflects by commenting on the attributes of the digital investment banking platforms most banks are beginning to provide.

GreySpark’s managing partner, Frederic Ponzo said,

“Flow monster banks need to refocus their ambitions and re-evaluate their market positioning, technology capabilities and levels of readiness for adaptation to new market structures. With fewer resources, it is vital to choose even more carefully where to invest them ever.”

After the sub-prime breakdown, a majority of banks have now shifted their focus to providing a less confusing and complicated set of products for their clients instead of emphasizing on sophisticated financial engineering. GreySpark labels this shift in paradigm as being a ‘rush to flow’. As a direct result of this shift, along with the considerable increase in electronic trading interfaces which corresponded with restrained transactional volume, a ton of asset classes are now experiencing constant issues because of over-capacity.

Unless the issue of overtrading using electronic platforms is not controlled either willingly or by exercising constant regulations, the investment banking sector will continue to make low levels of profits and investment ratios. The GreySpark report identifies traditional single digital investments that were the frontrunners when it came to the transition to online trading and investing. Unfortunately, they are just about empty and at the edge of their dominance. That is mainly because of the fact they are simply too many of them. Most of them are bulky and offer short-term solutions.
Furthermore, the consistent increase in prices and reduced margins, it has become impossible for investment banks to cater to e-services in each segment of the industry.  Author of the GreySpark report, Anna Pajor said,

“Despite the colossal inflation of the technology investment required to bring an SDP to market, proprietary platforms remain unique tools to build and defend an investment banking franchise. It will be interesting to observe how banks adapt to create these platforms.”

Therefore, it has now become increasingly important that if Single Dealer platforms are to compete in the market, it is imperative that they bring in new and relevant services to the table. They have to continue to grow and evolve and provide clients efficient services, services that the client can truly value, for example services such as smart order routing and SEF liquidity.