UBS Neo Helps the Buy Side Manage Complexity

On Monday, Lab49, a technology consulting firm, that worked on UBS Neo – its multi-asset trading investment banking platform.

UBS is offering Neo to buy side customers to enable them to move from bilateral trading to best execution on multiple trading venues. The goal is to provide a single-point of access for equities, FX, credit products. According to the bank in a statement, UBS Neo is a new, integrated way of accessing the full cross asset value of UBS's Investment Bank; its people, content, trading and post trade services all in one place.

At a time when buy-side firms are facing new regulations for FX and OTC derivatives requiring them to choose among multiple execution venues, single-dealer platforms are playing a key role in cross-asset electronic trading.

“Neo is the latest incarnation of the single-dealer platforms,” said Luke Flemmer, Lab49 CEO in an interview. “They are not just providing bilateral execution services. What UBS tried to do with Neo was leverage all the intellectual property in their business, focus on social, such as the ability to follow leaders in the UBS research community as well as sophisticated pre-trade and post-trade features, explained Flemmer.

Depending on the regulatory requirement for the product, they may be bilaterally traded or routed to a number of venues for compliance. “It deals with complexity by removing the buy-side from having to deal with that complexity,” said Flemmer. “The buy side is already struggling with the regulatory burden of deciding where to route its orders. “Neo will provide the analytics and the thinking behind it and will figure out how to trade all these products and then will figure out the post-trade services,” said Flemmer.

Built with advanced web technologies, Flemmer said Neo is novel with its use of social media components, which have been present in some of the competitive platforms, but taken to a new level. This includes “the ability to follow analysts within UBS that are generating research and making trade recommendations and indications and basically subscribe to that in a way that is very social, interactive and intuitive.” NEO also has a sophisticated search engine to enable clients to go in and navigate trades, research or historical data.

Single-Dealer Platforms Evolve

Single-dealer platforms are portals that the sell-side offers to allow the buy side to transact with them in a variety of ways. In the early days such portals were mainly used for execution as the dealers put out, say FX quotes and prices, which allow the buy side to transact with the bank.

Morgan Stanley Matrix raised the bar a few years ago by bringing in pre-trade research information, historical analytics along with execution services and post-trade supports for affirmations, confirmations and clearing, noted Flemmer. Viewed as an arms race, dealers took that as an incentive to upgrade their offerings and the market has seen a lot of investment in that space, according to Flemmer, noting that Lab 49 has been a partner with many of the banks.

Lab49 became involved in the UBS Neo project in 2010 when it was in stealth mode. Taking a multi-stage approach, Neo went live with clients in 2013 and continues to expand its footprint, said Flemmer. “We engaged Lab49 on the UBS Neo initiative based on their track record of quality and experience of working on complex enterprise programs with the most demanding of timelines,” commented Hishaam Caramanli, Managing Director at UBS in the press release. The development parallels the move toward increasing transparency and risk reduction, which is driving the move toward electronic trading mandated by regulators like Dodd Frank, EMI and Basel II. All of this is forcing changes in the business models.

Also, through the cross-asset platforms, a lot of the investment banks are taking a client-centric view of how the internals of the bank are organized for client. Banks have said: “Our clients see us as a service provider and they want to easily access all the asset classes,” said Flemmer. Many banks are creating sophisticated multi-channel strategies as Neo has done, said Flemmer. They want to touch clients in more places, including the web and mobile.

But the single-dealer platforms could morph into broader solutions that enable the client to execute away from the sponsoring broker-dealer with for example, swap execution facilities (SEFs).

If it’s FX cash, it could be a bilateral trade with UBS, noted Flemmer. Or, Neo will do the trade away from UBS if that’s what the regulation requires, said Flemmer. As the business model changes, UBS and other dealers have made statements that they are move to more of an agency model. “It think [that] it’s an industry wide trend that in general, the regulatory and capital constraints have driven a lot more of an agency model for a lot of institutions.”

The prediction is that single-dealer platforms could become multi-dealer and route to multiple venues. However, this could increase the stress level for clients. “For a lot of clients it’s not attractive to manage multiple relationships and venues. It just adds complexity and execution risk. If they can interact with a counterparty to provide all the research and post-trade services,” it actually manages the complexity for you,” said Flemmer.

So despite the view that single-dealer platforms are obsolete, Flemmer said they are here to stay. “In a tough market landscape, how you interact with your customers and how you build bridges, really becomes a key differentiator.”

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio