Why TP ICAP’s New Structured Products ATS May Unlock Liquidity

• First US electronic venue dedicated to secondary structured products.
• Central order book with real‑time RFQ could shrink the notorious “orphan” position problem.
• TP ICAP’s broader Fusion push signals a multi‑asset electrification wave.
• Competitors like SIX Swiss Exchange and BTIG are already testing similar models.
• Bull case: faster price discovery, tighter spreads, new revenue streams for advisors.
• Bear case: entrenched illiquidity, higher transaction costs, regulatory scrutiny.

Most investors ignore the hidden cost of exiting a structured product. That mistake is about to get a lot harder to repeat.

TP ICAP Fusion Structured Products ATS: Market‑Changing or Hype?

The Fusion Structured Products Trading System is an Alternative Trading System (ATS) built to address a decades‑old liquidity gap. By aggregating issuer banks, distributors, wholesalers, registered investment advisors, and broker‑dealers into a single electronic order book, the platform promises anonymous execution, instant request‑for‑quote (RFQ) aggregation, and a full audit trail.

From a trader’s perspective, the biggest friction point has been the lack of a transparent secondary market. Structured products are often bespoke—tailored to a specific risk‑return profile—so when an investor wants out before maturity, finding a buyer is akin to finding a needle in a haystack. The new ATS turns that haystack into a searchable database, allowing participants to post or request prices in real time.

How the New Venue Mirrors Broader Electronic Trading Trends

TP ICAP’s move is not an isolated event. The firm has been on an aggressive electronification path: it recently acquired Vantage Capital Markets to broaden its Asia‑Pacific footprint, hired 45 former Amazon engineers to supercharge its Fusion platform, and expanded its data arm, Parameta, into real‑time oil‑trading coverage.

These initiatives reflect a sector‑wide shift toward low‑latency, data‑rich environments. In equities, ETFs, and even fixed income, electronic venues are eroding the market‑making monopoly of traditional exchanges. Structured products have lagged because their complexity demands bespoke pricing engines; Fusion’s architecture reportedly supports multiple asset‑class APIs, allowing seamless cross‑product quoting.

Competitor Landscape: What Tata, Adani and Others Are Doing

While TP ICAP is the first to launch a dedicated US ATS for secondary structured products, rivals are positioning themselves nearby. SIX Swiss Exchange extended its trading hours to accommodate U.S. participants, effectively widening the window for its 70,000‑plus listed structured products. BTIG bolstered its structured‑products team in 2022, focusing on secondary trades for institutional clients. In the Indian market, Tata Capital and Adani Capital have begun experimenting with blockchain‑enabled issuance platforms that could later feed into secondary venues.

The common thread is a push for liquidity through technology. If any of these players can attract a critical mass of order flow, the “orphan” position problem could shrink dramatically, forcing pricing spreads tighter across the board.

Historical Liquidity Challenges of Structured Products

Historically, secondary trading of structured products has suffered from three intertwined issues:

• Customization: Each note is designed around a specific payoff structure, making standardization difficult.
• Information Asymmetry: Investors often lack real‑time pricing data, leading to wide bid‑ask spreads.
• Regulatory Barriers: Traditional exchanges impose strict listing and reporting requirements that many bespoke products cannot meet.

When the 2008 financial crisis exposed the fragility of opaque markets, regulators encouraged more transparency. Yet, without a centralized venue, structured products remained an outlier. The Fusion ATS directly addresses the first two points by providing a single, anonymized order book and aggregating RFQs from multiple dealers, thereby reducing information asymmetry.

Technical Primer: ATS vs Traditional Exchange

An ATS operates as a broker‑dealer that matches buyers and sellers without the full regulatory overhead of an exchange. It does not create a public market; instead, it offers a private, rule‑based environment where large‑block trades can be executed without moving the broader market price. This model is especially useful for illiquid, high‑ticket‑size instruments like structured products.

Key technical distinctions include:

• Regulatory Scope: ATSs are subject to SEC Rule 15c6‑1, which is less burdensome than Exchange Act requirements.
• Order Types: They commonly support proprietary protocols such as FIX, enabling rapid RFQ cycles.
• Liquidity Provision: Market‑making is often facilitated by designated liquidity providers rather than a central order book.

Fusion’s architecture reportedly leverages FIX APIs, allowing participants to plug in their existing order‑management systems with minimal friction.

Investor Playbook: Bull and Bear Cases

Bull Case: If the platform attracts a critical mass of issuers and advisors, price discovery improves, spreads narrow, and transaction costs fall. Advisors can then offer structured‑product exposure with a credible exit route, expanding the addressable market. TP ICAP could monetize the venue through transaction fees, data subscriptions, and ancillary services, potentially adding 3‑5% to its top line within two years.

Bear Case: Liquidity may remain fragmented if participants continue to rely on bilateral relationships. High compliance costs and the inherent complexity of bespoke products could keep spreads wide, limiting the platform’s volume. Moreover, regulatory bodies might tighten ATS reporting standards, increasing operational overhead.

For the prudent investor, the key is to monitor two leading indicators: (1) the volume of RFQs processed on Fusion (a proxy for market adoption) and (2) the spread compression on comparable benchmark structured products. A sustained drop in spreads coupled with rising RFQ counts would validate the bullish thesis.