The bank has migrated its foreign exchange, commodities, derivatives, and equities onto the platform in a bid to simplify risk and trading.

Now completed, the pair said the migration would help Commerzbank achieve business “expansion, consolidation, modernisation, and digitalisation” by improving speed to market and optimising efficiencies.

TeamTek and Infosys assisted in the migration.

“The successful platform consolidation is a major achievement,” said Sebastian Kauck, Commerzbank’s CIO for corporate clients.

“Throughout this project, the collaboration of our internal teams with Murex, TeamTek and Infosys has always been an integral part of its success. The new setup enables Commerzbank to significantly enhance process efficiency and simultaneously reduce costs. Additionally, it lays the foundation for future business growth as we can more swiftly adapt to market changes.”

Commerzbank confirmed it is set to continue to leverage Murex’s platform for future growth and strategic initiatives.

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The European equities market is set to get even more competitive now as smaller sell-side institutions continue to exit the market and the largest brokers absorb market share.

For several years shrinking commissions and stringent regulatory requirements imposed on the European market through MiFID II have made it difficult for participants to make equities trading pay. Rising costs have progressively encouraged economies of scale as a necessary means of survival in the market. 

“We’ve seen the market share in Europe has increasingly gone to the big three or four US banks and I think that’s even more notable since MiFID II,” Alex Jenkins, head of the trading desk at Polar Capital, told The TRADE.  

“When I think about the capabilities of the large US institutions, the amount of information analysis they have based on their own data, and the capabilities of their central risk books across asset classes, it’s just vast. I don’t know how you expect any smaller player to keep up with that.” 

Commerzbank was one of the latest participants to bow out of the market, confirming it would shut down its equity sales trading business in February as part of a drastic restructure plan that would see it reduce ‘costly complexity’ across its portfolio. Named Strategy 2024, the plans also outlined the bank’s intentions to cut 10,000 jobs in the next three years. 

“We have already started to review each and every client relationship on its return profile,” Manfred Knof, CEO of Commerzbank, said in a February statement. “In future, we will only deploy capital in client relationships that provide us with a decent return.” 

The bank joined a long list of other sell-side firms that, dwarfed by the giants on the other side of the pond, have chosen to cut their losses.  

Research and regulation 

Ongoing trends relating to regulation in Europe, particularly requirements enforced under MiFID II, have made equities a prickly asset class for institutions to handle.  

In particular, rules dictating how the buy-side consume and pay for research under MiFID II unbundling have had a significant impact on smaller boutique firms that relied on execution to pay for research. 

“We’re no longer in a situation where we can pay for research via execution, and that’s going to have an impact on those houses which in the past have relied on execution to help pay for that research function, particularly some of the boutique guys,” added Jenkins.  

Research unbundling requirements brought with them additional costs that larger firms have been able to absorb more easily, making equities a more profitable business.  

“The process of valuing research, modifying internal systems and communicating the MiFID II unbundling rule changes with clients was a big lift for buy-side firms,” said Anish Puaar, European market structure analyst at Rosenblatt Securities. 

Evidence of the impact of unbundling in Europe is clear from strategic partnerships recently forged in the industry. In late 2019, Kepler Cheuvreux and Macquarie joined forces to form an equities and research alliance. The deal saw the pair launch a platform for equities programme trading, and cross-distribute co-branded equity research to their client bases in Europe and Asia Pacific at the start of 2020. 

At the same time, Macquarie confirmed plans separately to reduce its domestic cash equities presence in Europe and the Americas in favour of refocusing its efforts on its business in Asia Pacific.

New regulatory requirements expected under the MiFID II review have the potential to make equities even more costly for participants with EU regulators keen to focus on a consolidated tape and continuing to encourage trading volumes from dark to lit venues. This will likely accelerate the need for scale seen in the market as participants are expected to absorb additional costs and navigate fragmented trading landscapes following Brexit. 

“That’s [the MiFID II review] going to come with a whole bunch of market structure changes, while Brexit could also pose further complexity as firms grapple with the best way to route orders to UK and EU venues. The recent Treasury consultation includes proposals that will likely result in significant divergence between UK and EU rules,” added Puaar. 

“Larger firms with scale and resources will find it easier to absorb those changes and deal with the regulatory headwinds.” 

SI regime  

The systematic internaliser (SI) regime, which became a key part of MiFID II, has also contributed to the ongoing requirement for scale in the European equities market. 

Trading volumes on SIs operated by brokers and banks have surged in Europe in the post-MiFID II era. A statistical analysis by the European Securities Markets Authority (ESMA) published in November  revealed that SIs had dominated the European equities landscape during 2019. However, the regime favours larger institutions that benefit from big balance sheets and extensive central risk books, allowing large US banks to consolidate market share.  

“The SI regime which says you’ve got to use your own capital again tends to favour firms that are prepared to deploy their own capital when trading with clients. That’s tended to be, not exclusively, the US banks,” said a former member of the sell-side who spoke to The TRADE on condition of anonymity.  

Regulatory changes amending the SI regime under MiFID II, for example relating to mid-point crossing, have also added to rising costs in the equities market that have somewhat excluded the smaller boutique players.  

“Banks spent a lot of time building SIs to meet regulatory obligations such as those related to pre- and post-trade transparency. But EU regulators have continually tweaked the SI rules, such as changing tick sizes and restricting mid-point trading, which requires systems to be constantly modified. These tweaks mean banks always have to be on their toes to remain compliant,” added Puaar. 

This need for scale has forced consolidation across banks and brokers in Europe as the smaller sell-side firms aim to bulk up to keep up with the larger players.   

Most notable was the deal agreed between Deutsche Bank and BNP Paribas in July 2019 in which Deutsche Bank agreed to transition its prime brokerage and electronic equities franchise over to its French rival. The agreement with BNP Paribas came as part of the bank’s restructuring plans that included exiting from equities sales and trading all together under a major restructure plan that aimed to reduce costs by around €6 billion by 2022.  

Through the integration of Deutsche Bank’s business, BNP Paribas said it was looking to become the top prime broker in Europe competing with the likes of Morgan Stanley, Goldman Sachs and JP Morgan.  

The French investment bank also acquired the remaining 50% stake in its long-standing partner and equity brokerage firm Exane in July in a move which brought its cash equities trading and research back in-house. Combined, both deals were intended to bulk out its business as it looks to stake its claim for the top spot as the leading institution in European equities.  

Never ending cycle 

As the market has continued to consolidate down to a few key players this has only sought to exacerbate the growing need for scale as the big players get bigger and the small get smaller. 

“The larger banks also have much more flow, and flow begets flow to a certain extent. They are able to improve their workflows and their hedging abilities with the more flow that they have,” concluded Jenkins.  

“It’s very difficult to play catch up; the big investment banks have already made large investments and significant developments in their equities platforms and they’re able to grow from that stronger footing.” 

The post In European equities size matters appeared first on The TRADE.

Commerzbank has outsourced its equity research and brokerage divisions to Franco-German financial services firm ODDO BHF under its radical restructure plans.

Under terms of the agreement, OBBO BHF will be the sole partner of Commerzbank for its equity brokerage and research, which the investment bank confirmed it would no longer be providing in-house.

In February, Commerzbank said it will shut down its equity sales trading business as part of a major restructure that will include the loss of up to 10,000 jobs by 2024.

Known as Strategy 2024, the ambitious restructure plans by Commerzbank aim to gain cost savings of €1.4 billion by 2024 with the jobs cut and the closure of 30% of its business locations globally.

“We have decided on ODDO BHF as a partner because this financial services group will contribute a high level of expertise in equity sales and trading for markets in Europe and North America,” said Michael Kotzbauer, member of the board of directors and responsible for corporate clients at Commerzbank. 

“This will enable us to create a significantly greater bandwidth for our corporate clients in equity market transactions and we will be able to ensure even better placement for them.” 

Commerzbank said it will remain as the first contact partner for its corporate clients under the terms of the agreement.

The development marks one of the first major sell-side outsourced trading agreements. Outsourced trading has predominantly been used by asset managers and buy-side firms to reduce costs.

According to a report from Northern Trust last year, demand for outsourced trading services from the buy-side has increased significantly recently as many firms looked to alleviate operational pressure brought on by the pandemic.

The white paper highlighted how a ‘fourth wave’ of outsourcing had been instigated by accelerated challenges faced by firms during the pandemic including pressure from competition, fees, regulatory and compliance challenges, technology costs, and shifting product demand.

The post Commerzbank outsources equities trading and research to ODDO BHF appeared first on The TRADE.

Commerzbank has rolled out its suite of five FX algorithmic trading strategies on the BidFX platform as part of its latest expansion.

The move means traders using the BidFX platform can now access the algo suite directly, including a range of execution strategies suited to trading preferences and requirements.

“Commerzbank welcomes the opportunity to increase our electronic distribution of our FX orders service on BidFX. This allows us to continue to provide advanced technology, unique liquidity and analytics to our mutual clients,” said Nickolas Congdon, head of eTrading services at Commerzbank.

BidFX is now a wholly owned subsidiary of the Singapore Exchange (SGX) after the exchange confirmed it would be fully acquiring the institutional FX trading platform provider from TradingScreen for $128 million in June last year. 

SGX had previously owned a partial stake in the firm after it acquired 20% of it in March 2019 for $25 million. 

Since its acquisition BidFX has launched several initiatives, most recently unveiling a new data and analytics suite aimed at providing institutions better FX pricing and liquidity insights, BidFX Data and Analytics. 

Commerzbank is the latest major institution to launch its algo suite on the BidFX platform. State Street made its algorithms available to traders on the platform in December, following other firms such as Nomura and RBC Capital Markets.

“It’s exciting to see the continued growth of our global relationship with Commerzbank via the integration of their algo suite, which is largely being driven by our asset management clientele,” added Rory Sheen, head of sales for Germany, Austria and Switzerland at BidFX.

“As buy-side market participants continue to increase their usage of FX algos to source the best liquidity and execute efficiently for their end investors, Commerzbank’s algo strategies are a welcome addition to the BidFX algo hub.” 

The post Commerzbank launches FX algos on BidFX platform   appeared first on The TRADE.

Speaking on the bank’s Capital Markets Day, Commerzbank CEO Manfred Knof outlined plans to wind down the equity business and streamline its product portfolio to reduce ‘costly complexity’.

“We have already started to review each and every client relationship on its return profile,” Knof stated. “In future, we will only deploy capital in client relationships that provide us with a decent return.”

Commerzbank’s ambitious restructure plans, known as Strategy 2024, include cost savings of €1.4 billion by 2024 with 10,000 full time jobs cut and the closure of 30% of its business locations globally. It will look to become a more digital bank with sustainability at the centre of its strategy.

“We all want to make Commerzbank strong, efficient and sustainably profitable again,” Knof, who became CEO of the bank in September, added. “By implementing our strategy, we believe Commerzbank can become the digital advisory bank for Germany. Implementing this program is my mission.”

Commerzbank is the latest to pull out of equity trading following other institutions such as Deutsche Bank and Macquarie, as years of declining equities commissions and regulatory changes have seen the business become far less profitable for smaller players.

Deutsche Bank decided to close its electronic equities trading and prime brokerage businesses and transfer its clients to BNP Paribas in a major deal outlined in July 2019. Similarly, Australia’s Macquarie confirmed it would reduce its domestic cash equities presence in Europe to focus on Asia with plans to combine its trading and research services with Kepler Cheuvreux.

In March 2019, Commerzbank and Deutsche Bank confirmed that they were officially in talks regarding a possible merger following months of speculation. While the merger never fully materialised, critics at the time claimed that combing the two struggling institutions would only create a larger problem for the German banking industry.

Commerzbank completed a deal more recently with Societe Generale in May and sold its equity markets and commodities division, including the manufacturing and market making of flow and structured products, and the asset management and ETF franchises, to the French bank. The transaction did not include Commerzbank’s cash equity brokerage and commodities hedging business.

The post Commerzbank exits equity trading business under major restructure plans appeared first on The TRADE.

The French investment bank confirmed in July 2018 that it would acquire Commerzbank’s EMC division, comprised of the manufacturing and market making of flow and structured products, as well as the asset management business and ETF franchise.

The transaction did not include the cash equity brokerage and commodities hedging business at Commerzbank, and terms of the deal were not disclosed.

Societe Generale said the transfer of EMC’s flow trading books including the ETF product range, marking making and product issuances systems, has now been completed. The development marks the last step of integration of EMC activities within Societe Generale, after starting the project in the second quarter of 2019.

Various senior Commerzbank EMC employees have now joined Societe Generale in line with the integration, with new appointments including global head of ETF sales trading at Commerzbank, Frank Mohr, who is now global head of ETF institutional sales at Societe Generale. Elsewhere, Michael Seifried, head of flow trading at Commerzbank, has been appointed head of global markets in Germany & Austria at Societe Generale.

The deal with Commerzbank will bring multiple benefits to Societe Generale’s clients, the bank said, due to an enlarged product range across more countries and asset classes. The transaction covered Commerzbank’s activities in Frankfurt, London, Hong Kong, Paris, Luxembourg and Zurich.

“In line with the bank’s strategy to diversify its market business model by leveraging on its core franchises, the integration of these flow activities will allow us to reinforce our exchange-traded investment solutions’ offer and our pan-European footprint, notably in the German exchange-traded products market, the most developed market in Europe,” Jean-François Grégoire, head of Global Markets at Societe Generale, commented.

Guido Zoeller, group country head of Germany & Austria at Societe Generale, added that the integration will also allow the bank to scale up its services, particularly in Germany, by leveraging Commerzbank’s exchange-traded products franchise, team and technology platform.  

Societe Generale’s finalisation of the Commerzbank deal follows a collapse of the bank’s equities revenues, which plummeted almost 99% to just €9 million in the first quarter this year, after recording a €200 million loss on structured products linked to dividend payments. Societe Generale CEO, Frédéric Oudéa, said in an interview with the Financial Times that the institution may have to rethink its equities business and reduce the amount of risk it takes on. 

The post Societe Generale completes integration of Commerzbank equity and commodities business appeared first on The TRADE.

All three partners said the move marks a further step in examining the potential and scope of distributed ledger technology (DLT) in the post-trade space, reflecting a delivery-versus-payment transaction and the transfer of tokenised cash.

Digital tokens generated using bank money and securities were simultaneously swapped as final and binding settlement using DLT, with Commerzbank also using tokenised cash credit as coverage of margin requirements at Eurex Clearing.

“This is an important joint effort in further exploring the potential of distributed ledger technology for the financial services industry. By combining multiple use cases within these transactions, we have broadened the scope of applications where the market can benefit from possible standards in this new technology. Our goal is to foster our role as financial infrastructure provider of choice,” Jens Hachmeister, head of new markets at Deutsche Börse Group, commented.

The transaction saw Eurex act as the tokeniser of cash, MEAG as the buyer of securities, and Commerzbank as the seller and custodian of the securities tokens. Commerzbank’s research and development unit also provided the blockchain platform.

“By reducing the need for intermediaries, the transaction process of securities is going to accelerate furthermore. The involvement of tokens representing securities and money will facilitate network efficiencies and build a foundation for the creation of standards. This is important for the buy side as standards lead to broader market acceptance and thus create liquidity on DLT platforms in general,” Dr Frank Wellhöfer, member of the board of management at MEAG, added.

The concept of the transaction has been shared regulatory and oversight authorities, with further products based on the test subject to approval and compliance with requirements and processes. Commerzbank and Deutsche Börse completed a legally binding repo transaction under similar conditions earlier this year, as part of the firms’ ongoing work with blockchain and DLT.

The post Commerzbank, Deutsche Börse and MEAG use blockchain for settlement process appeared first on The TRADE.

Speaking at the Sibos conference in London, the panel comprising banks and electronic trading platform providers discussed the state of liquidity in FX, agreeing that flash crash events are more common today, with retail investors often most affected.

“It depends on the size of the event, but we know that they’re becoming more common and systems are more able to deal with them. While we notice them, and often have to comment on them, it’s more business as usual for us,” said Dmitry Ilyaev, head of spot and eFX trading at Commerzbank.

Neill Penney, managing director and global head of trading at Refinitiv, added that the market is getting better at stopping the dip in a flash crash event sooner and then returning to previous levels, but better understanding is needed of such events so they can be better managed.

“We need better vocabulary and education around flash crashes,” Penney said. “When we see a flash crash event, the central banks want to see the data and are keen to find out what happened. For us running these markets, there’s a forensic phase even in the cases where there may not have been a massive effect on the market. It would be helpful to be able to differentiate the big events, from the smaller ones.”

The panel also discussed the recent Bank for International Settlements (BIS) triennial survey on turnover in OTC FX markets, which found that trading in global markets has surged to $6.6 trillion per day, fuelled by strong growth in FX derivatives trading, particularly FX swaps. Although the panel said they were surprised by the jump in FX swaps trading, they agreed that natural funding is flowing into the swaps market as more people hedge risk through swaps.

Jeff Ward, global head of EBS at CME NEX, highlighted the the swaps market is fairly immature when it comes to technology compared to the spot market, but Christopher Purves, head of FRC strategic labs at UBS, warned delegates that as systems and asset classes become even more intertwined due to electronification, the flash crashes of the future could be much larger and have greater impact.

The post FX industry urged to better understand flash crashes appeared first on The TRADE.

The group will be led by Roman Schmidt, who took over the FICC business at the start of the year, according to a memo seen by The TRADE News.

As part of an organisational realignment made in July to make the segments more efficient, the bank now has two executive areas for corporate clients in capital markets and transaction banking. The custody and clearing business of the German bank will now be headed up by Daniela Gellenbeck out of Frankfurt.

Gellenbeck has been with Commerzbank for six and a half years and will report to Mauro Ferone, head of sales, interest rates, currencies & commodities trading. Meanwhile, Rob Scott, who was previously head of market services, will now focus on relationships with market infrastructure providers in his new role as senior banker, institutionals.

The institutionals division is a newly created business line split into three units. The first covers banks, while another focuses on the buy-side including insurers, asset managers, pension funds and leasing companies. The final arm will work with financial sponsors, market infrastructure providers and market participants such as securities houses, brokerage houses, hedge funds.

Scott will continue to be based in London and report to David Burns, head of the financial sponsors, market participants and market infrastructure unit. The industry veteran has been with Commerzbank for six years after holding senior post-trade roles at Deutsche Bank, Citi and Cantor Fitzgerald. 

The post Commerzbank creates new capital markets division incorporating FICC appeared first on The TRADE.

The initiative, designed to facilitate payment and settlement for institutional markets using blockchain technology, is aiming to transform current post-trade processes.

USC plans to enable Delivery vs. Payment (DvP) in tokenised securities markets, and in the secured funding market, allow instant settlement on a Payment vs. Payment (PvP) basis.

More than a dozen founding shareholders, which include State Street, BNY Mellon and MUFG, have created the company Fnality International to move forward with the project following a series A equity round of £50 million.

According to a statement, Fnality is now aiming to create and deploy a regulated network of distributed Financial Market Infrastructures (dFMIs) to support the global exchange of value transactions. Initially, five currencies are in scope – CAD, EUR, GBP, JPY & USD – with further currencies will likely be added in due course.

Former Deutsche Bank transaction banking head, Rhomaios Ram, will operate as CEO of Fnality.

The other founding shareholders of Fnality include: Banco Santander, Barclays, CIBC, Commerzbank, Credit Suisse, ING, KBC Group, Lloyds Banking Group, Nasdaq, Sumitomo Mitsui Banking Corporation, and UBS. Technology firm Clearmatics will also play a role in the project it initially drew up with UBS four years ago.

“Working with our founding shareholders, we will start the regulatory approval process right away and look forward to connecting to the first business applications as soon as possible,” Ram. “USC will be an enabler for tokenised markets and also offers a significant opportunity to simplify liquidity management using one cash asset for as many settlement needs as possible.”

Fnality said the goal of its earlier stages of the USC project centred on research and development efforts to solve for a more efficient means of international cross border payments in the tomorrow’s world of tokenised wholesale markets. 

As it moves forward seeking regulatory approval the solution will now incorporating legal, regulatory, operational and technical aspects.

Fnality said in a statement that USC envisages being 100% backed by fiat currency held at the respective central bank with convertibility into fiat currency at par guaranteed at all times.

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