This year BNY Mellon has launched an outsourced trading service and expanded LiquidityDirect, its short-term investment platform, to allow clients to do more within the firm’s ecosystem.
Laide Majiyagbe, head of financing and liquidity at BNY Mellon, explained that the firm has about $1.3 trillion of liquidity that it helps clients put to work in everything from money market funds, deposits and repo, and only about 20% is on its balance sheet.
She continued that access to the full suite of liquidity products in a single place has proven to be important to clients, especially in volatile markets and when US banks have had issues. Over the past 18 months BNY Mellon has developed new products and services that meet a range of investment guidelines and risk appetites, both on and off balance sheet, to meet that need.
In May this year BNY Mellon announced the expansion of LiquidityDirect to provide access to more than 100 investment vehicles. LiquidityDirect has existed as a portal since 1997 but it was previously used exclusively for money market funds and Majiyagbe said that as the client base has evolved, BNY Mellon has seen the need to expand the platform. LiquidityDirect now also provides access to the BOLD® (Black Opportunity for Learning and Development) Share Class on Dreyfus Government Cash Management, offered exclusively through BNY Mellon, so clients can easily make a direct social impact.
“The portal is now a ‘one-stop-shop’ for cash investment,” she added. “We offer money funds alongside commercial paper, deposits, ETFs and repo to meet clients’ investment strategies without them having to leave the BNY Mellon ecosystem.”
On the financing side of the business, BNY Mellon believes the future is fungibility as clients want to seamlessly optimize, mobilize and transform their collateral in a single place.
“There are many solutions in the market today that target some or a combination of these needs, but nothing holistic,” said Majiyagbe. “BNY Mellon is home to the world’s largest securities finance and global collateral management platforms – the combination of those capabilities offers something unique and greater than the sum of its parts.”
There has been vast investment and focus on trading technology and the majority of trading is now automated in securities financing.
“Yet, settlements and other back office functions often remain inefficient,” added Majiyagbe. “We are seeing fintechs working on improving post-trade technology, and are finding opportunities where we can help modernize and innovate these important functions.”
Outsourced trading
BNY Mellon has also invested in launching a new outsourced trading offering powered by xBK, the buy-side trading division, in January.
Rebecca Crowe, chief operating officer, markets & execution services at BNY Mellon, told Markets Media: “Our hypothesis was that small and mid-sized managers would start to be interested in outsourcing but we have been really encouraged, and excited, to see some of the world’s largest asset managers calling us for help with a specific problem.”
She continued that the firm has a very impressive asset management franchise and successfully built a trading capability which manages tremendous scale and complexity. Therefore, outsourced trading was a natural next step as BNY Mellon has the required infrastructure and the DNA.
“We like to lead with our expertise because we are trading an average $1 trillion of notional volume annually across 150 investment strategies,” Crowe added. “I am not sure there is a centralised trading desk out there today that is operating at that scale.”
In addition, Crowe argued that outsourced trading has been an equity story for a long time but BNY Mellon’s ability to support fixed income and over-the-counter derivatives is a differentiator as competition increase in the space. State Street has announced the acquisition of CF Global Trading, which specializes in outsourced trading on an agency basis across asset classes. Northern Trust Capital Markets said in March this year that growth in its Integrated Trading Solutions business more than doubled over the past three years, including adding 22 new clients in 2022. The firm has more than 90 Integrated Trading Solutions clients across the globe.
“It has been an incredible six months since we announced our intentions and the timing is right,” said Crowe. “The macro environment is leading fund managers to focus on their core competency and investment decision process.”
The US and Canada reducing their settlement cycle for securities from two business days after a trade, T+2, by one day to T+1, with a planned implementation date in is another driver for outsourcing as clients need to be close to local markets according to Crowe.
“It is a discussion we are having with at least half of our clients,” she added. “We have traders covering APAC, Europe and the US time zones during settlement.”
BNY Mellon can also provide data science capabilities which use quantitative insights to fine-tune execution strategies, reduce transaction costs and execute trades within a risk-controlled framework. It is very difficult for an asset manager to have the required data and analytics in-house to get the benefits of scale according to Crowe.
“The more data we have, the richer those insights can be so data and analytics is definitely a key part of our development over the last five years,” she added.
Dragan Skoko, head of outsourced trading & xBK at BNY Mellon, said in statement in January that the asset management industry is at a critical inflection point as it continues to address fee pressures, higher operating costs, increased trading complexity and heightened regulatory requirements. Therefore, outsourced trading can help the buy side reduce costs, enter new markets faster or expand their investment product line-up.
One in six (16%) of asset and wealth managers globally are expected to be swallowed up or fall by the wayside by 2027, twice the historical rate of turnover, according to PwC’s 2023 Global Asset and Wealth Management Survey. The report also found that three quarters, 73%, of asset managers are considering a strategic consolidation with another asset manager in the coming months in order to gain access to new segments, build market share and mitigate risks.
Crowe said: “Every time an asset manager is integrating new assets, or reconsidering their macro view of the world and the strategies they should be presenting to their clients, that is another lift that is needed on the trading side. Fund managers often do not have the expertise, or the people in the right places and expensive trading technology and data capabilities are a must-have.”
As market cycles continue, a really important lever in the toolkit is having flexible costs and not paying for people to sit in seats with technology that is not being used at scale, said Crowe.
She added: “The incredible pressure on fees is not going to change so we think that is going to be important for our clients.”
