Finding the best trading and clearing value in fragmented markets with declining volumes can be an almost impossible task for all but the biggest brokerages. But the more complex the trading and post-trading menu becomes, the more the need for simplicity.
That’s the contention of executives rolling out Deutsche Bank’s new dbIntegrate service. The hosted service, which tries to handle all steps of a transaction from trade to settlement, has been offered by Deutsche Bank in Europe but is now becoming available in the United States.
The service offers pre- and post-trade functions as part of a single package. Customers can, according to Deutsche’s Andrew Morgan, co-head of equity trading for Europe, the Middle East and Africa at Deutsche Bank, reduce costs and operational trading risks.
The service outsources the entire trading process to dbIntegrate, which connects to 70 equities venues and acts as a custodian in 33 markets, he adds.
Deutsche Bank is targeting dbIntegrate at small- and mid-sized American banks and brokers who need to use multiple venues to get best execution and settlements. The costs of operating the service can be spread across many institutions, saving them overhead, maintenance and operational costs. There also can be savings in collateral used and connections made.
“If you’re a broker-dealer of a bank using different execution and settlement agents for each jurisdiction you’re trading or maintaining your own membership. It involves posting collateral at multiple (central counterparties), and also the risk associated with multiple relationships,” said Deutsche Bank when it announced the service.
“And maintaining a viable trading presence,” adds Morgan, the co-head of equities for Europe, the Middle East and Africa at Deutsche Bank, “in a landscape that is as complicated as the equity markets are today can become quite daunting in an environment where volumes are dropping.”
Many non-bulge bracket firms are finding it difficult to maintain the level of technology spending to stay in various venues and obtain best execution. Morgan says many of these firms must employ various vendors, which complicates their business.
“So let’s say you’re a medium-sized broker-dealer looking to access maybe a dozen markets and you might have membership in one or two of those, dealing with exchanges and central clearing counterparts directly,” Morgan explains. “For the others you would have looked for a counterpart, depending on the venue, to do your agent banking and clearing on the backend and then another agent for your execution on the front end.”
But Morgan claims that dbIntegrate, a joint venture from Deutsche Bank’s Global Transaction Bank and Corporate Banking and Securities Division, can eliminate many of these trading and execution steps, reducing operational risk.
That’s because, Morgan says, “we are able to offer the full integrated front to back package incorporating execution, settlement and custody and, by owning the full trade lifecycle, we will be able to take out significant costs and complexity from the process.”
The use of dbIntegrate can also save customers fees that would otherwise be spent on exchange memberships eligible for trading in various venues. Instead, Deutsche Bank is the members and its clients rely in its memberships and connections to various exchanges.
