McKinsey & Company

How trading as a service unlocks
opportunities for banks

Scale is crucial for capital markets sell-side firms in flow businesses. Trading as a service can make scale benefits more widely available, with opportunities for large banks and other market players.

For capital markets sell-side firms in flow businesses—cash equities and futures, foreign exchange (FX), cash rates, and cleared swaps—scale is critical. It directly drives productivity and profitability in those asset classes. Consequently, larger banks and other financial institutions are seeking to add scale, but most regional and national banks lack a route to achieve it. A compelling way that both groups of institutions can meet their objectives is to offer or purchase “trading as a service.” In such arrangements, at-scale financial institutions offer subscale regional and national banks execution coupled with front-end and back-end services, while the smaller banks retain the last mile to the client.

To succeed, trading-as-a-service offerings need to provide a materially better end-client digital experience and an enhanced liquidity and product offering, as well as address enough areas of the cost base of a regional or national bank to deliver meaningful impact on their economics, including in the areas of risk, finance, operations, and technology. Organizations with the potential to build (or help build) such offerings include at-scale banks, a coalition of smaller banks banding together, nonbank market makers, and technology providers.

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