Barclays Capital (Barclays) is set to follow Warburg Dillon Read (WDR) into on-line trading in Euro-CP next week, when it goes live. Its system Webtrade, launched last month, will be rolled out to clients in the coming weeks. And there are plenty more houses with systems in the pipeline. Supporters of web-based trading boast that the market stands on the brink of revolution. But not all market participants are quite so optimistic. Barclays' system can be used by all issuers and non-US investors. It shows levels in seven currencies and has separate swaps pages. Louise Mason, head of Euro-CP origination, at Barclays, highlights the benefits of internet trading. She says: "The system allows us to make more efficient use of staff. We don't intend to streamline numbers, but if simple trades can be transacted without help then we are able to concentrate on other things." WDR has traded Euro-CP on-line since April this year and the service generates 50% of its total business, either directly or by enquiry. It shows levels for up to 120 issuers and swaps are fed live onto the screen. Sam Cowan, head of Euro-CP, at WDR, says: "Our website is transforming the way the Euro-CP market works. We are giving the gift of time to issuers and investors." Citibank sees the value of internet trading, but David Castle, head of Euro-CP trading, at Citibank, says: "Surveys we have conducted suggest that clients may not be ready for full on-line trading at the moment. However, ultimately we expect all dealing houses will end up with some form of on-line capability in Euro-CP." And Phil Howes, head of Euro-CP trading, at Deutsche Bank, reports that many issuers are voicing concerns that banks won't call them if everything is transacted on screens. And he says investors complain that it is often time-consuming to download information, when a phone call would be quicker. Yet Cowan, at WDR, argues against claims that technology forfeits customer relations. He says: "If we only relied on technology it would be a fair comment. But we don't. On-line trading allows us to spend more quality time speaking to issuers and focusing on placement. We can tell issuers, from the information our database provides, what investors are looking at and buying." But Castle, at Citibank, is less than enthusiastic. He says: "As and when our customers demand this product, and when the time is right, we will launch an appropriate product to reflect the requirements of our customers." The Euro-CP market has grown rapidly over the past three years. And technology has the potential to expand the market even faster. Total outstandings at the close of 1997 stood at $109.38 billion, according to CPWare, and at the end of 1998 this had risen to $132.14 billion. On November 18, this year, it topped $190 billion. But Castle, at Citibank, is not convinced the time is right. He says: "Within the world of Euro-CP, when customers want a trade executed very quickly, the telephone for now is still the quickest method. Most of our customers value a full service including established relationships with dealers. Technology is clearly important but on its own does not make you a market leader. Personal relationships are still the most valuable thing." Cowan at WDR, admits that in the early stages there was client inertia. He says: "When we launched the system no one had any idea it was coming so we took the market by surprise. Some customers got it straight away, but inevitably others took longer to get used to it. It's a learning process and it takes time to get up to speed." Mason at Barclays, says: "The system offers efficiency and transparency. But it is a double-edged sword. The on-line marketplace cannot give the whole picture about an issuer. We are finding that many investors are just going for the cheapest prices on offer." The next step in on-line trading will be for issuers themselves to post their own levels directly onto the screen. The danger is that some borrowers, particularly those new to the market, could post unrealistic levels and fail to get business done. And dealers have reservations not least because it leaves them redundant. But if the aim is to cut out the middleman, banks must believe there's value in it for them on the flip-side, in terms of the information it will provide and the time it will save. Howes, at Deutsche Bank, says: "It won't be a problem for large financials. Many post their own levels now. But the corporate sector won't follow that route. They don't have the screens and they're not going to fork out to install them. It doesn't make sense for them when it's a service their dealers should offer." But technology is crucial for the Euro-CP market to expand. Cowan at WDR, says: "The Euro-CP market will grow exponentially over the next few years. When the barriers of same day settlement are removed and as the short-term market matures, the volume increase will be huge." (See MTNWeek, issue 156.) But Howes, at Deutsche Bank, expresses the view of many dealers that technology is the way forward, but it should not be the only focus. He says: "Technology enhances the business but it's not the be-all-and-end-all. It does have value but only as part of a wider service. To replace personnel with machines is not a prudent approach. You can't replace the value of having a salesperson on the end of the line."
August 11, 2000
