A simple way to understand an MDP is, a travel website which allows you to purchase air tickets from multiple airlines in one go. On the other hand a single platform provider is like going to a specific airline website and purchasing air tickets from a single airline. So, in this article I will discuss mdp full form and the various details of MDP Versus SDP.
MDP Full Form-( Multi Dealer Platform)
MDP stands for multi-dealer platforms, where a bank provides access to multiple investment banks services rather than its own proprietary technology. So, you can understand this in the same way, a travel website gives you option to take services from various airlines rather than one airline itself. Which then leads to the best service provider and optimum customer allocation.
Factors that Lead to MDP In Investment Banking
Just like the airline anology, the same can be understood in investment banking services too. While, you may look for a commercial flight on makemytrip, but for charter flights you need to contact a single service provider. Hence, there is a need for specialised as well as general options.
- Equity Trading
Now, consider the most popular segment of asset, equities. Many banks, had invested heavily on their own technology. However, since there have come up so many options which are more efficient and have more flexibility. Hence an SDP solution has failed big time in this regard. However, many banks have come together to create their own network of MDP.
- FX Trading
Now, the same trend can be seen in forex trading. Where, major giants have emerged in providing better services, and market particpants like Banks have become less active in this space.
- Fixed Income
Fixed income or bonds segment has also seen high electronicfication, led by software companies. Most banks have seen a steep decline in revenue generated from their platforms, as MDP becomes more popular in this space too.
Hybrid MDP Strategy
Dealers have long complained that margins have been eroded by the cost of doing business on MDPs, which aggregate liquidity by bringing together market participants.
We believe it is no longer logical to think of SDPs and MDPs as being mutually exclusive. We believe a hybrid SDP/MDP strategy can increase a firm’s digital cost-to-income ratio by as much as 45%, based on our work with clients and other internal research. This is a result of
Reduced price: driven by the adoption of shared technology in fields where functions like trading, post-trade processing, collateral management, reference data management, and client onboarding do not require differentiation.
Increased income: Driven by improvements targeted at areas where they can yield the greatest rewards. For the majority of businesses, these will include investments in exclusive technology that supports unique functions, especially in the fields of research and analytics, sales, prime financing, client servicing, and pricing/trading of structured products.
We recognize that these changes are neither quick nor straightforward. Ageing technology architecture and complex operating models may present challenges for businesses.
We also recognize that investing more in platforms at a time when margins are contracting can be challenging. The default response is to wait and see, but this can be a dangerous course of action. Firms are likely to continue overspending on proprietary technology rather than creating a platform based on a thorough understanding of what makes their bank unique. For instance, a bank’s sophisticated SDP may assist clients in gaining investment insights from customized research and analytics, but this may not be sufficient to alter clients’ habits of checking prices on lean MDPs and trading with the bank that has the lowest price.
We advise businesses to use a hybrid SDP/MDP model because buy-side clients are increasingly choosing among different sell-side providers.
In order to accomplish this, CIOs and CTOs will want to share technology using an MDP that forbids their organizations from contributing anything original to the platform. By using an SDP, this strategy will allow banks to concentrate on the areas where they actually add real value. Additionally, it maximizes their technological investments in a cutthroat market.