In the second part of an interview, Jonathan Llamas, senior structured products business developer, and Geraldine Laussat (pictured), who is responsible for developing the structured products offering on the ITG RFQ-Hub platform globally, talk about the company’s plans to expand its footprint in the Americas, what capabilities and solutions can be improved to support the structured products market, and the increasing overlapping between firms offering pricing and valuation, and risk management solutions and exchanges.
Platforms seem to be limited to just a number of payoff types and underlyings assets. Is there room for improvement around product capabilities?
We are active in Asia and Europe and we had to adjust our offering to meet the needs of the two regions, meaning that we offer support for the products that are in demand in both markets. At the moment, the demand for automation is around autocall, reverse convertible structures, and participation notes, but we have also seen increasing demand around credit linked notes and we are upgrading our offering accordingly. You have to be selective, as it would not make sense to automate the tools around products that are going to be traded once or twice in one year.
What are your plans in the US market?
Our move in the US is a reflection of our ambition to replicate our success in Asia and Europe. This move has its pros and cons. The main advantage is to show that we can be leaders in every market when it comes to providing meaningful IT/software solutions, but there are many challenges around education. Providers and investors are not completely familiar and may not be comfortable trading structured products in an electronic environment, and it is important that we are able to promote this approach.
Our strategy is to leverage ITG’s knowledge of the US market. Education will play a key role in promoting electronic trading automation, which is now possible in part because banks opened that door. Our role is to standardise and harmonise this segment around naming conventions and improve comparability.
We have seen pricing and valuation providers moving to build platforms to connect the buy and sell-sides. Would you consider expanding your offering to the pricing and valuation segment to match those competitors?
Not for the moment. Pricing and valuation is not something we have in our future plans. We want to offer a service that is fully compliant with current regulatory guidelines where products can be modelled and priced by bringing together liquidity providers. Moreover, we believe that our IT status is clearly an asset to provide the market with a broker-neutral solution.
How would you rate ITG RFQ-Hub’s performance over the last year?
We have been developing our capabilities to cover the structured products market and have increased our market share in Europe and Asia. We are growing and clients are approaching us to deploy our services and that is a good indication that we are on the right path. We believe we can bring value to the US market, and furthermore the Latin American market, where we sense a growing demand. We need to identify what areas of those markets require automation, but we are convinced that we can bring our business knowledge and knowhow to this rising market.
Exchanges have the technical capabilities to connect the buy and sell-sides, and we have seen them moving to offer OTC platforms and other capabilities around structured products. Could exchanges become a competitor in this area of the market?
Stock exchanges have the advantage of covering the mass market with an offering that revolves around public distribution and self-directed investors. Our offering is more about providing a platform for OTC products that are not necessarily listed on exchanges. These are two different segments and we don’t see any overlapping with exchanges at this stage.