In the second part of an interview, Milind Kulkarni, managing director and chief executive officer at FinIQ, speaks about the future of the market for structured products, and the main challenges it is facing.
Despite regulatory restrictions around client self-managed trade execution, "things can change once the disclosure regime gets very stringent on automation and 'Know Your Customer' (KYC) norms are also automated", according to Kulkarni. "In bank-to-bank workflow, posttrade events and document exchange has a huge potential for automation," said Kulkarni. "Automation pressure in the post trade area isn't so great, but it will happen at some stage.
"What comes next is whether the choice of underlying and choice of payoff parameters suits the client's investment objective," said Kulkarni. "There is no well-defined set of rules, although there are guiding principles and some high level rules imposed by central authorities. It is now how prudently banks offer product advice and direct their clients to operate within the bounds of client's investment objectives. From a very wide set of investment choices, navigation towards what suits best to a particular client, in a particular context would be the next fintech domain."
FinIQ's structured products venue went live in 2003 and in 2014 the company rolled out its multi-issuer equity linked and foreign exchange-linked structured products platform. "[Since then, we have] relationship managers and not just execution dealers booking and executing client orders with best price providing counterparties," said Kulkarni. "Each of our top four clients have no less than 400 bankers using our platform. Each buyside bank has something special about its automation workflow which we can't detail here."
FinIQ now has 15 counterparties for equity-linked products and nine for FX-linked structures. It also offers market venue solutions for fixed income bonds, said Kulkarni. "It covers equity, FX, and fixed income, as it stands," he said. "It is a distribution platform. We cover private as well as retail wealth and both have their own intricacies."
The company is seeking to be more broad-based, and more cross-asset to be able to price and execute equity-linked and fixed coupon notes, range accruals, equity and FX accumulators, dual currency investments, FX option strategies, target redemption forwards, FX cash and the majority of fixed-income bonds, "with in-house dealers intervening only when it's needed", according to Kulkarni. "There is an upstream wrapper, which we package as the relationship manager workstation offering, which unifies all instruments in apple-to-apple comparable view allowing easier suitability checks and indicative term-sheets. Our user configured products module allows almost any bespoke payoff to be designed in a matter of hours, giving flow as well as non-flow products a common catalogue look as well as a common reverse inquiry support."
Downstream, FinIQ drops done deals into its own middle office, which then monitors barriers, resets fixing, computes coupons, performs expires, and manages redemptions, according to Kulkarni. Further downstream, th company offers general ledger accounting, payments and client statements. "This sounds vast and unachievable, but most of it is already live for a long time," said Kulkarni.
The company is working on adding vanilla products such as deposits, insurance and mutual funds to complement its structured investment and OTC offerings. "With the support of 40+ different financial institutions, there is always a new use case for us to automate," said Kulkarni. "We rarely do applications outside of what our clients are ready for. Our research is more geared towards framework development, to cut down on product and workflow design timeline when a new use case emerges, making time to market objectives more achievable compared to the past.
"Shorter timelines have become a kind of obsession to many of us and that actually gives us the opportunity of doing multiple and diverse things at the same time," says Kulkarni. "Equity structured products, swaps, forwards, dual currency, target redemptions, bonds, mutual funds, shares, insurance, deposits, notes, baskets, they all follow a specific rhythm, though each one has a unique pre-sales, sales and post-sales workflow. Retaining that common rhythm across instruments is another challenge, but use of framework helps achieve it without much compromise in functionality or time-to-market."
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