Technology has played a major role in the development of the market for structured products in Asia in the past few years. In the first part of an interview, Milind Kulkarni (pictured), managing director and CEO, FinIQ, the sales and distribution platform for banking, treasury and wealth management products, spoke to SRP about the recent developments of the fintech industry in the region.

"We keep hearing about how Europe is different from Asia," says Kulkarni. "The more we probe, it looks the same as Asia. However, most of our peers claim the two regions are different. As we [FinIQ] come from a framework based background, to us payoffs, workflows, documents, disclosures, regulatory reports are just use cases."

According to Kulkarni, having two different payoffs or two different workflows observed in two different regions does not necessarily make it a completely different business model. "But, as most banks don't necessarily use frameworks, and they often do one-off hardcoded software for each use case, they rarely get the chance to see the commonality," he says. "Their IT personnel working on each region's platform is different, there is hardly any time spent to look at two regions from a single lens. As a result, any viewpoint that tries to equate the two regions is seen as an outsider view."

Kulkarni points that even two countries in one region or for that matter, two banks in one country, pose adequate challenges in terms of differences in operating models, so the extra dimension of a different continent or a different region doesn't pose an extra challenge to Fin IQ.

"Bonds, swaps, FX all of them had this problem of heterogeneity, yet there is significant commonality that has evolved across regions," says Kulkarni. "Structured products, in our view will mature to that level very soon. Technology costs would definitely be the sole reason to unify them."

FinIQ started dual currency structured products in 2003 and almost monopolised that market, according to Kulkarni. "Today those products get equated to simple FX or simple deposits in terms of their ease of offering, they are at times not even classified as structured products as there is very little awe factor due to complete automation," he says. "We like to think that our automation drive across a large number of banks, especially our focus on automating right up to the branch banker and RM level was one of the reasons."

According to Kulkarni, that trend is being replicated even for the equities asset class with popular products like basket-based fixed coupon notes. "Short dated structures of that family would soon be very popular, just like the FX DCI case," says Kulkarni, adding that regulators' move towards standardization under a layer of complete automation will enable selling these contracts to suitable clients within a matter of seconds.

"Once the end-clients start indulging more in choosing the product parameters, it will naturally promote attention, awareness, product education and will lead to a more stable market, one with a minimum guaranteed demand," he says. "Smaller denominations would follow, number of investors would expand, individual bankers also would build comfort level, the entire support system for growth will be in place, making the product selling environment truly retail, all this led by easy-to-use technology tools."

Fintech influence on structured products has been deep enough for a decade, according to Kulkarni. "It was earlier limited to single dealer platforms, whereby either a large investment bank or distributing bank's own trading desk would manage the liquidity," says Kulkarni. "Products were sold more on tranche basis with popular underlyings and popular payoffs getting repeated often. Reverse inquiry wasn't the norm. Prices were quoted and held for a long period allowing the distributor to pool client orders in a collective investment fashion."

According to Kulkarni this IPO styled subscription market still continues with smaller banks. "Large and mid-sized banks are shifting more and more towards reverse enquiry type ‎offerings," he says. "The number of underlyings have increased, choice of underlyings has increased, payoffs are little more diverse and most importantly the connectivity to multiple counterparties has arrived."

Multi-issuer platform has been the most innovative move and has already reached mobile devices, according to Kulkarni. "What it means is a banker who isn't at the desk can still design a product within given set of payoffs, reach out to 15 established market makers and price a structure, and all this within matter of minutes," he says. "Tens of iterations can be performed to compute strikes, coupons, knockout levels reaching to a point where the client is comfortable with the quote. The same process in pre-fintech days would take anywhere between an hour and a day."

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