Platform Fragmentation in the DCM Market


Where should banks place their bets?


A year or two ago, the narrative was all about how technology adoption in the fixed income primary market was lagging behind and how there needed to be more innovation.


This has now given way to an avalanche of different startups and fintech offerings, Bots among them (we were founded in 2020). The focus has shifted to the risk of fragmentation and there is now consensus about the need to avoid creating new technology silos.


It would be naive to think that a market as large, global and diverse as the primary bond market would ever coalesce around a single platform and so these concerns are indeed relevant and real.


What is more, banks are wary of nurturing up an all-encompassing platform that is bound to eat into their own business before long and so fragmentation is probably even built in by design.


With so many competing offerings and visions for where the DCM market might go and some as-yet unresolved interdependencies, it can be tempting to sit back and delay decisions until a clearer picture has emerged or others have cleared a path to follow.


A tech solution for every part of the transaction lifecycle


A useful way to think about this dilemma is to break it down into the different parts of the transaction lifecycle: pre-trade (which we define here as everything leading up to the mandate), execution (documentation, deal communication, bookbuilding and allocations) and post-trade (more documentation and settlement).


From the perspective of a DCM and Syndicate desk, the strategic value declines with each step of this workflow. While there is a lot of scope to differentiate and drive the topline in the pre-trade phase, the execution process in the syndicated market has to be more coordinated and standardised by definition. Then once you move into the settlement phase, the main objective is simply to reduce costs and have as few errors and manual interventions as possible.


DCM and Syndicate desks should think of their technology priorities in a similar way: seek to gain an edge in the pre-trade space where mandates are won; ensure connectivity with (and among) the relevant platforms to streamline the execution and deal communication process; achieve “technological parity” with the competition as far as bookbuilding and allocation processes are concerned; and then work with the industry as a whole to make the post-trade process as efficient and low cost as possible.


Business transformation with clear goals in mind


Throughout, the overarching goals for banks should be to i) find ways to provide differentiated added value for issuers and investors, ii) minimise costs and friction, iii) stay in control of any valuable data, and iv) work towards convergence in those areas where coordination is required.


It’s easy to let the perfect become the enemy of the good and end up in decision paralysis, waiting for the end-to-end, straight through processing nirvana. But not all technology decisions carry the same long-term implications. The risk of backing the wrong horse is only a problem in parts of the workflow that require market coordination.


The way we look at it, unless DCM and Syndicate roles disappear, there will always be the need to consume and analyse market data, to organise a bank’s internal information and workflows and to engage clients with meaningful information and advice.


This won’t change, whether bonds are then documented on a streamlined platform, announced electronically via one or several platforms, bookbuilt via an internal or external system or settled on the back of a wet ink signature or on blockchain.


You don’t need to wait for market-wide change to benefit from new technology


In the lifecycle of a syndicated transaction, there is in fact very little process or data continuity between pre-trade and the post-mandate execution work. Or in other words, the information and data that banks rely on and share with issuers in the coverage and pitching process is almost entirely separate from what then happens post-mandate.


To use an analogy, it’s a bit like a car company using CRM software for their sales people. There’s no need, or tangible benefit, for the CRM system to also handle the cars’ onboard computing.


This is why Bots doesn’t have an ambition to cover the whole lifecycle of a transaction.


Our focus is on being the best pre-trade technology solution for DCM and Syndicate, helping banks to cover clients and win mandates.


As part of this, we integrate with numerous data sources and third party providers. But from a workflow perspective, the downstream execution process – and therefore to a large extent the ongoing debate around platform fragmentation in the DCM space – is quite separate from the problems we solve.


This is not to say that there isn’t scope to streamline the process further down the line. Our platform is built to integrate with any client-delivery channel, whether this be banks’ proprietary channels such as email, presentations and in-house apps or third party solutions that face issuers directly.


As a DCM or Syndicate leader, take a look at the pain points your team currently deals with on a daily basis. If pricing updates, repetitive workflows, internal coordination or data analysis are near the top of the list – we can fix this for you right now with a scalable, long-term solution that doesn’t have any downstream dependencies on wider changes in the fixed income market.