Electronic B2B trading and the changing structured products landscape

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Sourced from Innovative Investor - 19/04/2010

Kevin Chin, head of derivatives platform sales for Asia at the Royal Bank of Scotland (RBS) in Hong Kong, talks to Innovative Investor about how electronic instant trading platforms are changing the landscape of the Asian structured products market. RBS has just launched its MyMarkets platform to institutional clients in Asia.

Innovative Investor - Could you describe how these B2B trading platforms work? How have things changed?

Kevin Chin - The easiest way is to go from how things used to be. People, for example private bankers and wealth managers, used to call up for prices and that in itself is a bit laborious because they may not be able to get the quote immediately, or they may not be available to take your call so there's an inherent time lag in that method. But obviously as more and more investors want to invest in more and more products, that's not a scalable way to do business. The next evolution was some kind of platform or automation which certain investment banks gave to their top clients so they could get instant quotes electronically. What we've done is taken this technology, and made it available for the masses, and scaled it up in a very big way.

Innovative Investor - These platforms seem to be emerging as a trend in Asia recently. Why do you think that is? Any why now?

Kevin Chin - It started off in Europe, and was successful there. Suddenly you had this big crisis and crash, and all of these hedge funds and mutual funds didn't have stellar returns and people got burned. So investors have become a lot more cautious, and they want to be more involved in the investment process. They're not paying hedge fund managers and asset managers huge fees anymore, they're wanting to understand a bit more about what they're buying. So, the effects of the crisis has cascaded down to all sorts of investors, and so I think that the attitude affecting Europe, more cautious and more involved, is also applicable to an Asian investor. Finally, I think Asian investors are a lot more tech savvy.

Innovative Investor - How does the emergence of these platforms change things for the private banks?

Kevin Chin - I think that the crisis has forced us to look at the ways we do business, and I think that how we've done things in the past is not necessarily the way we'll do business in the future. There's no secret there, where the secret lies is that people recognize that early enough that they're ahead of the curve. My view is that the private banking model moving forward won't be the same as it was in the past. You have two diverging client groups within the private banks. In the past it's just been the high net worth individual, but the 'premier banking' group has expanded, and the private banking segment has expanded and there is a kind of an overlap, and it's a question of how do the private banks cope with this overlap. Interestingly, as they've tried to target this grey area - the people who are getting rich - there has been a clear segment which as been somewhat neglected in the past, which is the ultra high net worth. That kind of group has evolved, and a lot of private bankers have left and set up their own family offices for these clients. I don't think that what we're doing is going to affect the private banking business, I think that private banking business as a model itself is changing, and trading platforms will become a more significant part of that new model.

Innovative Investor - Will this kind of platform reduce or increase costs for end users? How will it affect them?

Kevin Chin - A lot of clients ask whether they have to pay for our platform, but they don't have to. This is key, this is why a lot of the other platforms in the past have not worked, because they have built it for a very specific client base. We've built ours on an open and scalable architecture. For other banks, they've kind of shot themselves in the foot because they're not really willing or able to expand the platform to outside their target audience.

Innovative Investor - We noticed that during the launch for your platform you ran a competition. How did that go?

Kevin Chin - We recognised that the best way for anyone to learn is to do something for themselves. We could do millions of presentations, but they could go in one ear and out the other. The best way for them to learn is for them to play with the platform. Prices were real and followed the market, and they could trade from 9am to 3am, standard trading hours for the platform. During office hours nothing happened, but come 7pm we were getting all the hits. The latest trade was at two in the morning. It was really addictive. We had weekly prizes for the most gains, prizes for the most trades and even the night owl prize - and we had awards dinners in Hong Kong and Singapore afterwards too.