Dealers are racing to build electronic front ends for their existing capital markets operations.

These days, commercial and investment banks are eager to promote themselves as cutting-edge capital markets e-players. Behind the scenes, however, bank initiatives have ranged all over the map. Some institutions are being led into the new era kicking and screaming, while others are embracing the inevitability of the new e-commerce platform—even if they're not exactly sure how the platform will impact their bottom-line profitability.

Many banks have joined consortiums to trade electronically everything from cash foreign exchange (EBS) and foreign exchange options (Volbroker.com) to credit derivatives (creditex and CreditTrade). (See "Alternative Trading Systems Fight for Turf”)

The plethora of potentially duplicitous products to trade traditional fixed income is also dizzying—TradeWeb, BrokerTec, Securities.Hub, CFOWeb and Market Axess all basically offer multidealer pricing and electronic trading platforms for bank customers. If nothing else, this promises a huge change in transparency to a market that as recently as the early 1990s had only one broker, Cantor Fitzgerald, providing real-time intraday pricing to the public. The changes are likely to be so dramatic that consulting firm Meridien Research bluntly warned in a recent report: "There is no long-term career track for Treasury salespeople in the USA.”

But if the joint bank consortiums aren't confusing enough, many banks are hedging their bets with outside Internet-company investments. Deutsche Bank, for example, has aligned itself with Pedestal.com and most recently taken a substantive stake in National Discount Brokers (a most un-German type of move); Credit Suisse First Boston has invested in two on-line equity platforms, Tradepoint and REDIBook; while JP Morgan has stakes in web-based risk management efforts such as Horizon and Cygnifi.

"There is no long-term career track for treasury salespeople in the USA.” —Meridien Research

Of course, each bank and brokerage firm has its own web site as well, and slowly but surely some solo-branded trading platforms have emerged. In some cases, these have begun with prime brokerage efforts and are moving from back-office functionality to front-office usefulness. In other cases, research and risk management have been the starting point, with dealing functionality quickly being built around earlier web-content efforts. Yet in other instances, banks that previously had neither platform up and running are madly working to build everything from scratch.

Thus far, however, few institutional money managers and hedge fund dealers are actually using e-based transactional systems. "We use all of the prime brokerage web capabilities, and love them,” says managing partner Brian Cohn of hedge fund SAC, "but we have yet to do a trade over the web. That day will probably come, but for now we haven't seen the pressing need for it.”

E-commerce initiatives at the major banks and brokerage firms seem to change every two weeks or so, but here are some notes on where things stand at the moment and who's leading the pack.

Bank of America

Through Bank of America Securities (formerly Montgomery), Bank of America has long maintained a leading presence in equity prime brokerage, and its web site, PrimeBrokerage.com, is equally impressive. It has no dealing functionality yet, but hedge funds and institutional clients alike can slice and dice their positions in almost any report imaginable—a middle-office person's dream. The bank is rapidly developing its foreign exchange prime brokerage business, and the reporting flexibility afforded equity clients is also available to foreign exchange prime brokerage clients at gmg.bankofamerica.com.

Thus far, few institutional money managers are actually using e-based transactional systems.

On top of this initiative, BofA just announced its participation in CFOWeb, where it will provide prices in foreign exchange, interest rate derivatives and money-market instruments. A standalone foreign exchange dealing platform is also on the way, according to Saurabh Narain, head of e-commerce for derivatives.

BofA is certainly behind some of the e-commerce leaders, but it's still very much in the hunt.

Barclays Bank

Not historically known as a technology spark plug, Barclays Bank surpised many e-commerce watchers when it recently rolled out BarCapFX—an automated Java-based currency dealing system for its clients. The system draws prices from three sources—EBS, ReutersMatch and manual dealer input—and superimposes on that inside market various gradations of spread and service. "The foreign exchange market is a natural home for Internet-based banking services,” explains Paul Thrush, Barclays capital managing director and head of foreign exchange. "It is probably the most commoditized of all the wholesale financial markets, and demands a dealing and processing system that takes full advantage of the latest technology.” Barclays has already lined up one large client for the system—U.S. retail giant Charles Schwab—and others are likely to follow.

In addition to its TradeWeb, BrokerTec and Securities.Hub participation on the fixed-income side, the bank also has a product called CBWebinfo for convertible bond trading, CPWebtrade for commercial paper trading, XTAS (eXchange Traded Access System) for trading global electronic futures, and Strax for Internet borrowing and lending of securities. All the different acronyms notwithstanding, the bank hopes to unify many of these systems into a consolidated reporting system named FCAS later this year.

"I fully expect to be made redundant by this technology within 18 months.” —Kevin Mirabile Barclays Bank

Justin Bull, based in London, is spearheading the bank's e-commerce efforts, together with Kevin Mirabile, based in New York. According to Mirabile, "Barclays is designing its web platform along two distinct themes: one platform exclusively for research across all products, and a second platform for execution across all products.” Since the bank no longer has an equity presence, and is small enough to coordinate a cross-product approach, Barclays may potentially be more organized in its vision and delivery than some of its bigger rivals. A well-organized research site already exists (visitors can publicly see the headlines, but need a password to read the text—surely a nice come-on tactic), with some of the transactional capabilities still to follow. The bank's efforts are sufficient that one salesperson recently admitted a bit facetiously and in private, "I fully expect to be made redundant by this technology within 18 months.”

Citigroup

If merging Salomon Smith Barney and Citibank within a short period of time wasn't enough to contend with, Citigroup has embarked on many diverse e-commerce capital market initiatives, with a preliminary emphasis on foreign exchange. On March 8, Citigroup announced its participation in Volbroker.com (see "FX Options Go Electronic”), and has quickly developed CitiFX into a real-time web-based trading platform. SSBDirect is another of its initiatives on the fixed-income side, and while the system doesn't have dealing capabilities yet, its research content and delivery is first-rate. The bank is a major participant in TradeWeb, BrokerTec and Securities.Hub, so real-time transactional capabilities on SSBDirect can't be far behind.

CSFB

CSFB has had 150 programmers working full-time and has invested multimillions of dollars over the past five years to develop its unified PrimeTrade platform. The platform is not quite done, but it's the closest thing to the age of George Jetson out there, making CSFB the clear e-commerce leader of the pack.

PrimeTrade is, in fact, just one part of a multifaceted and interconnected series of Prime platforms—PrimeFX, PrimeDebt, PrimeClear, PrimeRisk, Govtrade, Eurotrade, CPTrade, ECPTrade, ADNTrade and CDTrade. "Just tell us what you want to trade and we'll give you a way to do it electronically,” is CSFB's approach, and "If you trade it with us why not clear it with us?” is the hope.

CSFB gives the basic system away on a CD to institutional clients and promises instant upgrades of the software over the web via Marimba automatic downloads. If you want the risk measurement capabilities of PrimeRisk to run on top of your PrimeClear account, that will cost you just a few dollars extra. Algorithmics is CSFB's partner in this latter endeavor.

If e-commerce comes to rule the world, it should be noted that CSFB got there first, and is likely to stay in that position.

Chase

Chase claims that 4,000 institutional clients have access to its new global markets web site, and by the time this issue goes to press, it is scheduled to roll out its new ChaseFX platform, with ChaseNetmatch to follow shortly thereafter. On this combined platform, clients will be able to deal and confirm trades automatically over the web, and completely bypass the traditional phone, telex and letter confirmation processes. Chase's web-development efforts have traditionally been solid, with security issues at the forefront of its design process. The ease of its user interface may thus determine how many of those 4,000 institutional clients will actually avail themselves of these new product offerings.

Elsewhere, the bank has developed ChaseDepo to absorb short-term money deposits of corporate treasurers, an e-based new-issue platform for the auctioning of corporate debt, and some fixed-income risk management tools that are impressive. The bank is participating in the TradeWeb and Market Axess fixed-income consortiums, but overall seems some distance behind the unified strides made by CSFB. There is a definite initiative here, but in typical big-bank fashion, where's the flash and verve?

Deutsche Bank

The primary instigator in developing the Volbroker.com initiative for currency options trading, Deutsche Bank was also an early entrant into fixed-income e-commerce with its Autobahn system, now three years old. The system may appear a bit passé in light of all the new joint-bank initiatives such as TradeWeb and BrokerTec in which Deutsche also participates, but Deutsche must be credited with being early on the web starting line. The bank also offers ExchangeLink for the electronic trading of futures, FX e-Lynx in currencies and a prime brokerage product with some web-based functionality but which has its roots as an over-the-counter margining system from Bankers Trust. Deutsche's systems are reputedly klunky in comparison with the CSFB standard-bearer, but this bank is clearly striving to be an e-commerce player. If Volbroker.com works, Deutsche will deserve significant kudos.

JP Morgan

JP Morgan's RiskMetrics product was one of the first to deliver information via the Internet. That entity has been spun off, but has left a variety of offspring in its wake. There is the Horizon risk management platform being developed in conjunction with Ernst & Young, and Cygnifi.com, Morgan's application service provider offering. Most recently, the bank announced yet another joint initiative called Arcordia, with Electronic Data, the second-largest U.S. computer services company, to allow on-line derivatives post-trade management and settlement.

The bank also has two in-house products branded Morgan Markets and Volatility Center, as well as a new unit called "LabMorgan,” which has been allocated several senior managing directors. Confused? Join the club. There is vision and substance here, but Morgan seems to be expanding willy-nilly, and certainly without the organized platform that CSFB has demonstrated. Maybe that's what LabMorgan is supposed to accomplish. We'll see.

FIMAT

It may still be illegal in France to establish web sites in English, but SG's subsidiary Fimat has certainly embraced e-commerce. The firm reputedly spent a few million dollars to develop Fimatex, the company's European equity-trading product, and then launched it as an IPO, now valued at $1 billion. Ooh la la! Fimat has also launched a more institutionally oriented product called Fimatrade, which offers instant direct access to trading on the world's derivatives markets, whether those markets are electronic or not.

Veteran Fimat trader, strategist and salesperson Stan Jonas says that TradeWeb—in which Fimat is also an active participant—has already dramatically changed the landscape in Treasury trading, and he is watching other e-trading platforms with anticipation. "Everyone is looking for market share on TradeWeb right now,” he says, "but it is equally clear that at the current spreads, not everyone is going to be able to survive. There is going to have to be some rationalization of e-commerce soon.” Fimat has always had the biggest body count on the largest number of global exchanges, so if electronic trading arrives in force, it should be able to cut costs dramatically.

Elsewhere within SG, the credit derivatives group is a keen participant in creditex, but the bank is well behind in coordinating any global foreign exchange presence on the web or elsewhere.

The Also-rans play catch-up

Missing from our recap above are, of course, a number of significant financial institutions. After a fast start with multiple ECN investments and active participation in TradeWeb, Securities.Hub, BrokerTec and now Munigroup.com, Goldman Sachs' other e-commerce efforts remain hidden behind a relatively impermeable veil of secrecy. Merrill Lynch launched a significant e-commerce initiative in early 1999 called Direct Markets to allow clients a single way to navigate across different product areas and functions, but a complete product has yet to be rolled out. Merrill has had some success using its iDeal platform for corporate bond Internet roadshows, on-line prospectuses, order entry and allocation. Its Financial Futures and Options web site (research and risk management only) was recently named the best of its kind by Financial Net News, and Business-to-Business magazine recently named Merrill's e-commerce head Michael Packer one of the top champions of B2B e-commerce. Great things may be in the works here. E-commerce initiatives exist at Morgan Stanley Dean Witter and UBS Warburg Dillon Read, but these firms are revealing little about their status. UBS–WDR now offers global market quotes at the push of a button on one's mobile phone, and the bank promises that clients will be able to deal all products on its web site within six months. Its joint undertaking in currency options with Volbroker.com is clearly part of this effort. Lehman Brothers, for its part, is moving slowly on equities and foreign exchange, but has taken something of a lead on Internet bond origination. The firm was lead manager for the first global Internet offering and was a major participant in "e-bond” transactions for Ford Motor Credit, the World bank, Wal-Mart, Abbey National and its own corporate debt. There's little here, though, on the derivatives or futures side. Have we left out anyone? Sure we have. Domestically, Bear Stearns, PaineWebber, and Prudential Securities all surely have their e-commerce thinking caps on. Internationally, one hears that SEB Bank is making huge e-commerce initiatives, while ABN Amro recently announced a strategic investment in Trade.com, the financial services Internet portal of BlueStone Capital Partners. How about WestLB, Commerzbank, or Den Danske Bank? Watch this space. —B.L.

CSFB Leads The Way

In 1997, Guillaume de Dalmas, a Westchester hedge fund manager, became one of the first users of Credit Suisse First Boston's PrimeTrade Internet platform. He soon found he was able to trade and monitor his positions electronically—even from a European beach. De Dalmas was so impressed he soon joined CSFB as head of e-commerce marketing, reporting to the system's developer, Philippe Buhannic.

PrimeTrade and PrimeFX, which dovetail with each other, are the two central electronic execution lynchpins of CSFB's futures and foreign exchange trading. Prices from Eurex, Liffe, the Paris Bourse and other API-compatible exchanges feed seamlessly into PrimeTrade. With other exchanges, orders are routed to salespeople who send them to the exchange floor. The fill still comes back electronically—it just takes a little longer.

"PrimeTrade gives us more information than anyone on the phone could ever provide regarding the depth of the market, speed of execution and detail in the reconfirmation process,” says Norman Hyman, director of trading at New Jersey hedge fund Hyman Beck Capital Management. "Any floor games that might otherwise happen in illiquid times can't be played here. The system is extremely user-friendly and we love it.”

Money managers can customize their own PrimeTrade screens. Click on a displayed contract and a real-time order book appears, with the volume bid and offered showing up as well. Click on a designated button and a trade entry screen allows you to join the trading crowd instantaneously. The total turnaround time on a market order occurs in the flash of an eye. "The system is designed so that anything related to trading takes immediate precedence over other Windows operations,” explains de Dalmas. "Even with my low speed modem connection in France last year, I was amazed by how quickly the fills popped back.”

Want to trade cash foreign exchange? Not a problem. Maneuver yourself onto the foreign exchange platform, and ask for a dealing price in the euro. For anything up to 5 million, the price comes automatically back with a scroll bar at the bottom of the page timing how long you may ponder the price before dealing. Too slow reacting to the price the first time, or waiting for a small price change? Just ask again—as many times as you wish. There's no human salesperson hanging on the other end of the phone slowly getting irritated with your indecision. There's simply a computer spewing out prices automatically derived from electronic feeds.

But most customers want to roll their cash foreign exchange forward outright. CSFB is once again a step ahead of the competition: the forward points page has all dealable prices as well.

A few more clicks and the trade heads to PrimeClear, CSFB's prime brokerage offering where you can also monitor your positions in real time. If you are trading with other firms, but still giving up CSFB, PrimeClear also sweeps CSFB's back-office systems throughout the day, and will pick up any trading activity that you have done away. There is even a button to reconcile your personal computer trading log to the PrimeClear back office, highlighting any differences. Your overall position-monitoring may not quite be real time, but it's getting close. Everything you trade during a given day—equities and fixed income as well—can end up feeding into a single location, and if you want to run value-at-risk reports on your total amalgamated position, it's as simple as having another switch flipped on to enable CSFB's PrimeRisk II system to do its thing.

De Dalmas claims that having an integrated trading platform back in 1998 allowed CSFB to maintain its credit lines for a number of hedge funds to a much greater extent than some of the bank's competitors. "You can never tell what a hedge fund may be holding outside its PrimeClear account,” says Dalmas, "but with a client's permission, when CSFB extends credit to a hedge fund, we can monitor its PrimeTrade account. It makes everything much more transparent. CSFB or a trading desk manager can actually hard-code position limits and dealing constraints into the system so that a junior trader will never be able to trade more than 50 lots, or a hedge fund can never go absolutely nuts.”

The one thing still missing from PrimeFX is over-the-counter options, and many of the API feeds for exchange-traded options are not there yet, making PrimeTrade's functionality here less than perfect. For the moment, most options must still be transacted verbally and filter into one's PrimeClear account via the back-office path.

"When options are part of the execution platform, it's really going to sing,” volunteers one hedge fund manager. "The day-time electronic trading of CBOT products scheduled for sometime in the next six months should also be a waterfall event for this product.”