Keeping the personal touch: A journey with NatWest Markets, Symphony and Adaptive

On the third of January 2018, everything changed. MiFID 11, a set of regulations affecting many parts of a financial institution’s workflow-particularly pricing and execution, had come into force throughout the financial markets. In particular, MiFID ll’s new transparency requirements and best execution reporting mandate (RTS27) now required accurate timestamps for inquiries, public reporting of quotes in near real-time, and had much tighter requirements for record keeping and best execution. Complying with these regulations had kicked off a strong shift from voice trading to electronic trading, as a coping mechanism for the newly introduced process inefficiency on both the buy and sell side.

However, change often brings new opportunities. In early 2018, three industry experts met on a rainy evening in London to discuss just such an opportunity, along with a vision of how these seismic shifts might allow a bank to really differentiate itself.

The first two members of this group were Matthew Harvey, Head of Fl Client Execution Platforms & Digital Sales, and his teammate Julien Dugat, both at NatWest Markets. Julien explained, “Matt and I knew that MiFID II presented a real challenge in fixed income, where voice execution and client relationships have always been of primary importance. But it wasn’t the compliance with MiFID II we were worried about. We’d already met that challenge. What concerned us was the loss of the personal touch with clients. We know that clients really appreciate the personal attention and bespoke services that a real person can provide. Our skilled salespeople can target known client interests, publish value-add trade ideas and content, communicate axes, and leverage their insight to the benefit of clients.

The “Eureka” moment

Enter the third member of the group, Chris Rodriguez, an industry veteran with a long track record in finance. Chris is the Global Head of Workflow at Symphony, a secure, cloud-based, collaboration and content sharing platform funded by a group of industry heavyweight firms on both the buy and sell sides. It offers a secure and compliant inter-firm chat platform, with wide support for bots and integrations. Chris quickly showed how Symphony could support their workflow, and for Julien and Matt it was a “Eureka” moment.

As Julien puts it, “Matt and I quickly realised that the key thing Symphony gave us was access to our client’s desktop. We knew that most people are reluctant to install more software, much less yet another new single dealer platform. But Symphony already has a wide-reaching install base, and they’re backed by some of the biggest firms in the business. It was also completely open with good API access allowing workflow integration using nonproprietary standards on both sides. This was it. This was our solution.”

Diving into the challenge At the start of 2018, NatWest Markets predicted that MiFID 11, EMIR, and Dodd Frank would cause a shift of 15% of Interest Rate Swap {IRS) voice flows onto Electronic Communication Networks (ECNs) in the first year.

The real shift was double that-nearly 30%.

Matt and Julien wanted to find a way to get a new competitive advantage from this huge shift; both for their bank, and more importantly; their clients. As Matt frames it, “the question is, how do we protect bank’s client relationships as market structure changes and the full electronification at its end point represents disintermediation? Like it or not, every market is moving away from voice to electronic, and increased electronification is both an explicit and implicit aim of regulation.”

The process inefficiency of dealing on a voice basis with a dealer; having to manually book the trade, and then capture data in accordance with the regulations; means venue trading can represent an easier option. However, as Matt states, “for a dealer, if all your inquiries go via an electronic venue, you can be disintermediated as venues develop rules-based execution services. You’re then placed in a higher competition environment.

This is unilaterally assumed to be good by many, but it can lead to a worse trading experience as information leaks to a larger number of competitors.” Certainly the lesson from equities and FX, which are already further down the electronification journey, is that full electronification can be a ‘race to the bottom’, as margins compress for both sides.

One way to tackle this problem might be a new single dealer platform (SDP). However, several industry heavyweights already have large scale SDPs. Meanwhile, the industry broadly agrees SDPs in fixed income are either dead or dying for a variety of reasons. So embarking on a new build of an SDP capability seems counter intuitive.

Matt and Julien were looking for a synergy between voice and ECNs, a hybrid mix that delivered the benefits of both, with none of the downside. They wanted a client to be able to request levels, work with RFQs, and execute all through seamless automation while still benefiting from the personal touch of a dedicated salesperson. Julien refers to this innovative hybrid concept as digital voice.

The power of this concept can be illustrated with three simple use cases.

The final element

In conjunction with NatWest Markets’ technology team, Matt selected Adaptive Financial Consulting, a financial technology consulting firm headquartered in London, with offices in Europe and North America. “Truthfully, we all knew Adaptive were key to mobilising this project”, he recalls. “I knew Adaptive had good recent exposure to the technologies, standards and process challenges that this project involved. They move incredibly fast, and they have deep knowledge of all the cutting-edge frameworks we need. They’re also heavily involved and highly collaborative in the technology forums around FDC3, OpenFin and Symphony. Frankly, if you’re trying to mobilise something quickly on those frameworks, it’s just common sense that you’d want to go with people who’ve used them before, and who aren’t learning from scratch. After years of inwardly focused development in fixed income at NatWest Markets, where the strategy was to leave the venues to develop client workflow solutions, we knew we needed a partner

who had a good track record of delivering client-facing solutions in FICC.”

At the beginning of 2019, Adaptive began work on a Symphony bot to meet Julien’s plan-the first iteration of what became known as Scout. There were some technical challenges-notably that they could not rely on installing yet more software. As Julien says, “It was very important to us that the solution be as close to zero footprint as possible. We didn’t want to force our clients to install anything new. We wanted the solution to just work.” However, for Riko Eksteen, Adaptive’s Head of Desktop Strategy, issues like these are not intimidating, because he has already solved them for other clients. “There are always specific hurdles to overcome in any environment, for sure, but we’ve done this before, several times. Our track record gave me confidence from the very beginning that we could implement Matt and Julien’s vision.”

Using Scout in Symphony to retrieve a level 

Using Scout in Symphony to execute an RFQ

Using Scout in Symphony to retrieve a level

Using Scout in Symphony to execute an RFQ