Why BNP Paribas is collaborating with GTS in the US Treasuries market | Analysis of the deal

By Alex Hammond | 25 January 2018

In late 2017 BNP Paribas announced that it had partnered with global electronic market maker GTS, in order to leverage GTS' trading and technology capabilities with the goal of providing the bank’s clients with deeper liquidity, tighter spreads and further improved pricing in the US Treasuries secondary market. 

bobsguide sat down with Adil El Batji, Head of e-Market Making & Commerce Americas, and Ryan Sheftel, Global Head of Fixed Income at GTS, to delve further into the nuts and bolts of the deal.


Outline the nature of the collaboration between BNP Paribas and GTS.

Adil El Batji: This collaboration is designed to bring liquidity and better pricing for our clients in the US Treasuries market. The US Treasuries market is a market which is very liquid, and already very tight, but clients are still asking for better liquidity and tighter pricing. We cannot achieve that without introducing new technology, which is why we are aiming to do this with GTS.

Were you actively looking to collaborate on that function, or did GTS come to you with a proposition that you realised would enhance the business?

Adil El Batji: The value that GTS brought to the table was immediately attractive to BNP Paribas.

We decided several years ago to use new technology across the business. We’ve invested greatly around digital, and when it comes to liquidity, technology is a pillar of our strategy, the question then was how to make it happen. Should we invest in a low latency platform within BNP Paribas, and rebuild everything for the US Treasuries market, or should we partner with someone? The answer was very clear for us.

We met with some electronic market making firms and when we met with GTS it was clear GTS was the right partner for us; we share the same values and we share the same vision, which is important for us.

Ryan Sheftel: Partnering with a forward-looking firm like BNP Paribas is an arrangement that we take very seriously, because for this collaboration to succeed, you have to commit a lot of resources, time and energy into it.

There are similarities in the culture and business practices of the two firms. We were impressed with the ways in which BNP Paribas creatively thinks about adding value to the market as well as how seriously the organization takes its commitment to its clients. And a firm with that attitude is one that we want to work with. Ultimately, we think the collaboration brings value to the market and creates a win-win situation.

Another factor that resonated with us was that BNP Paribas was pursuing this collaboration with us for positive, proactive reasons. With so much of the noise in the banking sector being about cost cutting and shrinking businesses, it was refreshing to see that BNP Paribas was on the other side of that chatter. This is about growth, and over everything it is about adding more value for their clients.

Is there a limit to the number of partners that you do work with?

GTS: GTS is very focused on the BNP Paribas deal right now and ensuring that it operates effectively, but in the future there may be opportunities to collaborate with other like-minded market participants on ways to introduce new forms of efficiency to the marketplace and we welcome those types of arrangements.

If you’re going to achieve a really valuable, committed partnership, you must be able to apply the resources needed to achieve that.

Give plenty of credit to BNP Paribas, this is a very innovative idea, and as a result, we need to be extremely prepared and adaptable. As the collaboration evolves, the resources we are going to need will also evolve; we need to be ready to execute on those needs, so that we can deliver the value.

BNP Paribas has been very public about the fact that this collaboration is going to deliver value to the bank’s own clients; the industry is going to be watching, so we need to make sure that we are lined up appropriately to be able to deliver.

Ari Rubenstein, Co-Founder and Chief Executive Officer of GTS, recently commented: “This is a transformative moment for capital markets and reflects the evolution between banks and electronic market makers.” How does the deal mark a new era?

Adil El Batji: Banks would like to serve their clients with greater liquidity and better pricing. You have electronic market makers that are fighting between themselves to provide liquidity in the market. We are aiming to leverage the best of both worlds, to provide an optimum service to the client.

An option for achieving that is to do it with a partner where technology is their core expertise. Our core business is to deliver value on many products and solutions to our clients. We believe that our collaboration with GTS creates an offering that will best serve our clients.

It is not the first time that we have seen banks partnering with high frequency firms; we have seen it with Credit Suisse, we’ve seen it with JP Morgan and Virtu. We think that this collaboration with GTS is very innovative because we are not just targeting a technology partnership, it is more than that; the partnership will extend beyond US Treasuries. We are focusing on that market for the time being but our vision that we share with GTS is to expand to other asset classes.

How do you expect your competitors to react?

Adil El Batji: The questions we have tried to answer are the same questions all banks are currently asking themselves i.e. how to provide value to the client in a very competitive and very liquid market.

To solve that conundrum banks must look at what is available in-house, or explore partnering with someone else. I cannot speak about which decisions banks are individually going to take, but it is clear the decision BNP Paribas took.

Are there any implementation issues surrounding the collaboration?

Ryan Sheftel: One of the unique aspects of the partnership will be bringing together staff from both companies. There are highly sophisticated quants at BNP Paribas who are going to be joining some of our best people at GTS.

The implementation is going to be important because this will be a tight, integrated partnership.

Would you describe this collaboration as being in the revolutionary or evolutionary?

Adil El Batji: It is an evolution, primarily because BNP Paribas has already been investing in trading technology for a long time and because it is the natural progression of our principles as a bank. To continue to invest in technology is expensive, and it also takes time.  It is imperative that we give our clients the best service that exists in the market. The evolutionary step is simply: “Why we don’t accelerate this by involving a partner that can bring additional services which are its core business?”

More generally, where do you believe the industry is heading?

Adil El Batji: The market is moving more and more towards very liquid products and towards electronic; pushed by regulation, pushed by cost efficiency, best execution and so on. That trend is already happening now and is going to continue.

On the other side, banks such as BNP Paribas want to concentrate and to focus on their core business, which is providing the best service, including pricing and liquidity, to all of their clients. Of course we know that technology is a key factor. We are investing internally but that is not enough. Where there are experts whose core business is that technology we require, we will partner with them. I think the trend for other banks will be similar.

We have not only seen it at BNP Paribas with GTS, it is visible in many other areas.

What are GTS’ goals for 2018 and how do you think your market is going to change in 2018?

Ryan Sheftel: We’ve seen industry consolidation in 2017. Demand for liquidity provision is down, supply is up. In some ways, the democratisation of technology, cloud computing, and the abilities made possible by quantitative analytics and data, is changing the nature of our industry. These developments will continue to create further economies of scale and hand an advantage to firms that are more innovative and can devise new lines of business. Within the banking industry, it has become very difficult for smaller banks to compete with the capabilities and technology of larger ones, and I think we are going to see that in our industry as well. We believe that this collaboration with BNP Paribas will serve as an example to other financial institutions grappling with these same problems and we’ll see more such partnerships in the future. 

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