DrKW hits its cross-asset stride.

LONDON—Dresdner Kleinwort Wasserstein (DrKW) is hitting its stride in its bid to provide clients with one-stop shopping for cross-asset class trading—a keystone of its Digital Markets (DM) group, which is paving the way forward for the firm.

"One of the key tenets for Digital Markets was the idea that it had to be across all asset classes," says Sean M. Park, managing director and head of DM for Capital Markets at DrKW. Park is the keynote speaker at the DWT London show this week (see story, this issue). "In mid-to-late 2004, that was still a potential stumbling block within DrKW because the way we were structured organizationally was still very much by asset-class silos or tribes," Park says. "I didn't push very hard in 2004 to put this plan into action because I thought it was tilting against windmills a little bit," he says.

However, the catalyst that allowed DM and cross-asset trading to become realities took place in late 2004 when consolidation came to the business heads of Capital Markets. "Previously, we had four co-heads of capital markets and I think you can imagine what that was like," Park says. The new department head had the mandate to break down the silos, and by Spring 2005, the new head of capital markets began restructuring capital markets.

The revamp created a window of opportunity for Park and his team. It also led to a new role for J.P. Rangaswami, who set aside the global CIO title at the bank to work in the DM group as head of alternative market models. "The two of us ultimately hatched what became Digital Markets over the last two to three years," Park says. Meanwhile, Park ran the customer-facing credit business globally and DM for six months until the DM group was created on July 1, 2005. On Jan. 1 of this year, Park handed over the credit business and took full control of DM.

"In a nutshell, it is an electronic agency brokerage within the investment bank," Park says. "It's the group within Capital Markets responsible for developing, deploying and operating all of our electronic trading and analytical applications across all asset classes and across all geographies. My budget this year is circa €50 million euros. Over the next five years, I want to see that grow quite substantially—in a J curve."

DM has two main mandates, Park says. The first mandate is the e-commerce role for the traditional business lines, products and customers. "If it were just that, it would be a nice thing to do, but it wouldn't have attracted my personal interest in terms of putting my career behind this," Park says. "The other angle is the longer term payoff of DM. Over time, we will deliver products uniquely through this channel to a whole host of our customers."

DrKW's nimble size—it has approximately 6,000 employees—has helped it make the transition, Park says. "It's still small enough that it's tractable, compared to HSBC, or Citigroup or Deutsche Bank for instance—we are almost an order of magnitude smaller in terms of size—as far as number of people."

However, DrKW is still a "big institution," Park adds. "You cannot turn on a dime even when everyone says hard left. For the super-tankers it's even harder: Even if you ram it over, you have to wait for a long time for any effect to be felt."

Even so, according to Andy Rowland, the head of trading for DM, DrKW, the new plumbing has enabled traders to work simultaneously in: cash equities in European centers and the U.S; government bonds and gilts; cash foreign exchange (FX); and listed derivatives. "We're pushing out into credit in the near future," Rowland says.

One of the key goals for the cross-asset push is to grow the business without having to take on more staff, Rowland says. In addition, current staff has been adjusting to the new situation.

"In one aspect or another, all cash traders are using electronic trading in order to trade the markets," Rowland says. "Then you have varying degrees depending on who they are and what their functions are, as to whether they are using a small capacity to view liquidity and then to trade manually. They could also be algorithmically trading where the machine has taken the decision and they're almost overseeing the machine as opposed to actively trading themselves."

The jobs of the traders are not necessarily changing.

"It's just that a lot more of their jobs are becoming automated and they're concentrating on bigger more value-add business and leaving the machines to deal with the smaller more liquid markets," Rowland says. "It allows us to have single traders that can trade multiple asset classes at the same time using single technology. It is very much breaking the boundaries really because the business has classically been siloed."

To break those boundaries, the governing principle has been one of agnosticism. "We're trying to be agnostic as to the platforms that we use in various asset classes," Park says. Much of the IT work is focused on cleaning up the plumbing of electronic trading such as the multiple APIs, buses and front-office applications. Over the last two years, DM technologists have been focusing on what systems to keep, what to turn off and what to buy.

The firm's incumbent IT arsenal consists of third-party and internally developed systems, says Matt Camichel, managing director and global head of flow trading technology, DM, Capital Markets at DrKW. "We're not putting in new platforms to implement the Digital Markets platform," Camichel says. Some of the third-party systems are: Royalblue's Fidessa primarily for cash equities; an in-house credit offering, E-Bond; and price generation via Sonaris from Orimos.

Officials at Orimos confirm that DrKW is a client while Royalblue officials were not available for comment by press time.

"Over the past few years, what we're now spending a lot of time and effort on is the integration of all these products," Camichel says. "We're putting in layers to make these products invisible to the external world and give us a cross-asset class platform that enables you to trade any asset class from any connection."

The integration helped advance the firm's algorithmic trading services, which are supported by the offerings of Kx Systems. Officials from Kx confirm the implementation.

The move to algorithmic trading is something that has been growing in "the electronic areas such as cash equities," Camichel says. "We're in a situation where having a generic layer across all asset classes has enabled us to very quickly implement with Kx a cross-asset class solution there. We had all the connectivity to execute pretty much anywhere."

For the future, the DM group will stay focused on enhancing its algorithms "so that we can give more automation to the client as well as more services and more products," Rowland says. "We can also further automate the process so that the machines do more and more of the work."

©2006 Incisive Media Investments Ltd. All rights reserved. Used with permission.