The article below was written by Pablo Conde from Structured Retail Products (SRP) on April 3, 2024.

Following the recent partnership between Luma Financial Technologies and Vontobel to further expand the Swiss issuer’s offering for dual currency notes (DCN) and discount certificates on the deritrade platform, SRP spoke to David Wood, managing director, Luma’s International Business, about the fintech’s progress in its international expansion efforts and where the market is in terms of automation, usage and adoption.

The expanded collaboration with Vontobel does not represent a shift in Luma’s target market which has always had a buy-side focus.

“Effectively, we are working from a Vontobel perspective as we are providing the multi-issuer capability to the buy side,” Wood told SRP. “Vontobel of course is a slightly separate case because you have got the sell side and the buy side under one roof.”

One of the reasons why Luma can do this with issuers from a multi-dealer perspective is because it provides an independent integration.

“We have a technical Chinese wall between all the issuers, and all the other issuers are happy because there is a clearer segregation,” said Wood.

From a business perspective, according to Wood, there are other benefits for the issuers; for example, Societe Generale and UBS are connected to Luma for full click and trade via their own preferred API and product models, and Luma manages the adaptations needed by Vontobel’s deritrade.

“That technology integration previously had one beneficiary, Vontobel,” he said, adding that those issuers have been able to phase out bespoke and expensive trading connections, replacing them with a single connection to Luma that connects them to a higher number of clients.

“Other buy-side clients, such as asset managers in France or structured product brokers in the UK and Switzerland, also get a better service level. Previously, an issuer might only provide them with prices on Luma. Now they provide them with automated documentation, trading and everything else because of the integration.”

Wood points at a similar project with a large private bank in Asia, where Luma provided a multi capability into their services.

“We are not planning on launching our full platform service in Asia at the moment, but we will tap in where we see opportunity,” he said. “What we have got is the integration with the issuers – it’s just another product and it’s easy for us to add.

“We have been working on creating more interaction and connectivity between buy side and sell side, so instead of having multiple situations where everyone can only use pricing and trading connections once, we are trying to create more of a standard connectivity hub, so people can connect one and use that connection many times.”

Opportunities

The focus for Luma beyond its home market continues to be Europe, where Wood believes “there is a lot more for Luma to do in both in terms of growth in our business and leveraging platform technology to bring more consistency across jurisdictions”.

“France is different to the UK, which is different to Spain and so on,” he said. “We have done quite a bit of work in Switzerland and there is more to bring out there. We also think that bringing that capability back to US and Latam clients is where we see a lot of value and opportunity.”

This opportunity comes to some extent from the fact that more issuers are now moving towards a global platform model – “the US market is not suddenly going full automation, but we are certainly seeing a big shift”.

“When I joined Luma, as a US-focused platform, we had no issuers providing automated pricing,” said Wood. “We now have over 20 issuers providing automated quotes, with many being used in the US; it is a positive change for the US market and a trend that is accelerating.”

Looking back

Like many other market players 2023 was challenging from a structured product market perspective because some markets did very well while others were less consistent.

“The US market was quite strong, but in Europe the impact of the fallout of [the war in] Ukraine was still flowing through, so we saw quite a bit of variability,” said Wood. “Overall, I think it was a stable and positive year. From a Luma perspective, we had a solid infrastructure rollout. We invested a lot throughout the year in terms of building out our platform and capability with our partners.”

In 2023, Luma implemented several projects with clients that were delivered throughout the year and that came together towards the end of the year.

“The result of that is our platform in Europe, and Asia processed more trades in the first two days of February 2024 than we did in the whole of February 2023, which is very encouraging,” said Wood.

“As a result of clients adopting automated pricing, we are starting to see the volume of RFQs in the US rise to reflect trends we have seen elsewhere in Europe and Asia, we are also seeing quite a bit of similarity in product features being used across regions.”

Despite the similarities, the volume of trade tickets remains much higher in Europe and Asia, “as clients typically trade more bespoke products with smaller notional amounts, whereas we still see a much higher notional per ticket in the US”.

Going forward

As the industry moves forward the technology agenda Wood sees opportunities across the board as some “issuer systems are still very fragmented in the sense that their Asia business is completely different from the European business, which in turn is different from the US”.

From a connectivity perspective, this is not efficient because Luma must do the same piece of technology work three times to connect one issuer to its clients.

“The good news is we are seeing more and more issuers who are increasingly global and use a single connection to manage their global business,” said Wood. “We did this with Citi when we integrated a full STP trading capability for their business in Asia and Luma clients in other regions can benefit from their automation.

“We are currently working on a pilot with a client in the US, which signals a complete change of cycle; the US has always been behind the technological advances seen in Europe and Asia.”

Wood recalls that three years ago, very few issuers and distributors were using automated pricing in the US.

“Everyone was using it in Europe and Asia, but in the US, it was something people could not easily experience. That is changing now, and the US is embracing full automation,” said Wood.