Cubillas Ding<br />Research Director, Finance & Risk<br />Celent<br />Amar Budhiraja<br />Director, FINCAD Alliance Progra...
Agenda<br />Introduction<br />Demand for Pricing and Valuation<br />Challenges Facing Sell-Side, Asset Managers and Hedge ...
About the Companies<br />Celent<br />Founded in 1999 by veteran financial services technology analysts<br />International ...
About the Speakers<br />Cubillas Ding, Celent<br />Research Director in charge of Finance & Risk practice<br />Previously ...
Oliver Wyman Financial Services <br />October 2009<br />Integrated Derivatives AnalyticsCubillas DingResearch Director, Fi...
Market Context<br />Overhang from the bad ‘old’ days: Fragmentation and a lack of consistency within internal infrastructu...
Specialized skill sets (sales and traders alike)
Numerous, single-product front-end applications
Overlapping risk management, pricing and back-end functionality</li></ul>Source: Celent LLC<br />
Market Context<br />OTC processing activity chain – Crisis means that there is a stronger emphasis on certain ‘hotspots’ –...
Phone
Email
Phone
Email
Trade support inputs manually
Pricing
Non-standardized, often highly manual process
Deriv/SERV, MarkitWire, T-Zero
Electronic or Faxed
In-house systems and manual monitoring</li></ul>Transfer to risk / finance<br /><ul><li>Platforms (Creditex, Tradeweb, Mar...
Disclosure<br />Valuations/pricing<br />Incentives<br />Accounting/capital<br />Market Context: Pricing and Valuation<br /...
Risk control, transparency and accountability dynamics are the new world order<br />Market Context: Pricing and Valuation<...
Market Context: Business & Technology Priorities<br />Challenges faced across sell-side, buy-side and hedge funds are emph...
Emphasis on robustness, scalability of processing
Stronger emphasis on user interfaces and dashboards
Partnerships and interfaces with analytics providers critical
Resource constrained (IT budgets under pressure), concerned about project and vendor risk
Increased flow demand (including commodities)
Prefer simplified views of product sets
Effectiveness and efficiency of product control processes
Demand for enhanced risk models (more scenarios,   new models, wide coverage)</li></ul>Asset Managers<br /><ul><li>Overall...
Partnerships and interfaces with analytics providers even more critical
Drill-down capabilities required
Performance attribution and collateral management capabilities are in demand.
Focusing on core / profitable activities – risk averse (e.g. derivatives)
Increased awareness to counterparty exposure
OTC derivatives processing pain continues in back and middle office
Preference for integrated solutions
Demand for ad-hoc reporting tools</li></ul>Hedge Funds<br /><ul><li>Requested to provide (1) greater transparency and (2) ...
Need for greater automation in reporting processes
Resource constrained
Strategies shifting (distressed debt, credit derivatives, etc) and less multi-asset requirements for new HFs
Need for less product complexity, simplified interfaces/GUI
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Integrated Derivatives Analytics: Accelerate Your Time to Market and Reduce Development Costs

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  • Well Susan I think that using third party derivative pricing analytics can be very helpful for system vendors looking to meet the types of needs described by Celent in the previous slides. As Cubillas mentioned, with derivative pricing and risk analytics being the proverbial “hotspots” and now receiving increased focus by financial institutions - Some of the biggest challenges facing system vendors is to Keep pace with this constantly evolving derivative valuation need and processing capability required by clients – especially as they begin trading new derivative instruments or use them to hedge their risk… Then there is keeping pace with Regulatory requirements as demanded by clients looking to comply with– FAS, IASB, IFRS, SOX etc - And provide the standardization and transparency that clients now require – especially the need for independent valuation and transparency And to top it all – all this needs to be done in both quickly and cost effectively….
  • So in In many ways that’s where Third Party providers of derivative analytics help The most obvious reasons to integrate applications with a 3rd Party provider of Analytics is to have access to trusted derivative pricing and risk analytics that can be easily integrated to meet your clients needs quickly &amp; cost effectively. ::And we all wish it was just that simple!Undoubtedly though - working with best of breed providers of derivative pricing analytics certainly has advantages. They can help:Accelerate your time to Market: As working with providers of Industry standard analytics helps mitigate model and methodology risk especially if your organization’s core competence does not revolve around researching and implementing financial models. Using a third party provider can help cover any gaps in derivative instrument coverage relatively easily - Thereby drastically improving speed to market especially in a highly competitive environment – where clients don’t seem bound to application types or specific vendors to meet their valuation needs.They can help you Stay Current with your clients evolving needs: In addition to helping you meet the derivative coverage needs of you clients - they become critical for implementations of conventions required by regulatory mandates as they come into being . A very recent example of this has been the ISDA mandated methodology to value CDS contracts. Having access to a trusted analytics providers focused on the provision of analytics helps meet such needs quickly and cost effectively. And as the Celent Report mentioned earlier Disclosure and valuation practices are crucial for restoring market confidence. That’s what clients are focused on especially in today’s environment ...and now more than ever.. Financial Institutions are required to have Confidence in the data and assumptions for their valuation methodologies and Confidence in the financial models used by these methodologiesThat’s where industry standard analytics play a huge role..because they can help provide a transparent derivative valuation solution giving you the ability to provide the documentation necessary to help your clients satisfy various regulatory compliance requirements especially as they relate to valuation methodologies in support of the numbers produced by your solutions. And valuations produced by best of breed providers of analytics are trusted and recognized by your clients and their auditors And finally …A third party derivative solution can save you many many man hours of development, QA and research time –- Especially, if the development of derivative pricing analytics is not your core competence, as I mentioned earlier.SD: So Jack what solutions does FINCAD provide to help system vendors or service providers to help their clients? JM is head of Product Management at FINCADJM:
  • Integrated Derivatives Analytics: Accelerate Your Time to Market and Reduce Development Costs

    1. 1. Cubillas Ding<br />Research Director, Finance & Risk<br />Celent<br />Amar Budhiraja<br />Director, FINCAD Alliance Program<br />FINCAD<br />INTEGRATED DERIVATIVES ANALYTICS:Accelerate Your Time to Market and Reduce Development Costs<br />Presenters:<br />Jack McKeown<br />Director, Product Management<br />FINCAD<br />
    2. 2. Agenda<br />Introduction<br />Demand for Pricing and Valuation<br />Challenges Facing Sell-Side, Asset Managers and Hedge Funds<br />Why Integrate with 3rd Party Analytics<br />FINCAD Enterprise Solutions<br />FINCAD Alliance Program<br />Next Steps<br />Q&A<br />
    3. 3. About the Companies<br />Celent<br />Founded in 1999 by veteran financial services technology analysts<br />International research and consulting firm<br />A division of global financial services consultancy Oliver Wyman<br />Focused on three industry verticals: <br />Banking, Securities & Investments, and Insurance<br />FINCAD<br />Founded in 1990<br />Value leader of derivatives and fixed income analytics solutions<br />“The Industry Standard for Financial Analytics”<br />Proven, accurate and trusted<br />Strong market presence with over 3,500 clients in:<br />Banking, Asset Management, Hedge Fund, Insurance, Corporate Treasury, Auditing, and Software Development<br />
    4. 4. About the Speakers<br />Cubillas Ding, Celent<br />Research Director in charge of Finance & Risk practice<br />Previously held strategic business/marketing research, project management, and IT strategy planning roles at Datamonitor, HP European Labs, Accenture and NCR<br />Amar Budhiraja, FINCAD<br />Director of FINCAD Alliance Program<br />Previously held channel management positions at various Global 500 organizations<br />Jack McKeown, FINCAD<br />Director of Product Management at FINCAD for 3 years<br />Over 20 years of experience as a Product Manager<br />
    5. 5. Oliver Wyman Financial Services <br />October 2009<br />Integrated Derivatives AnalyticsCubillas DingResearch Director, Finance & RiskSecurities & Investments Group<br />CONFIDENTIAL | www.oliverwyman.com<br />
    6. 6. Market Context<br />Overhang from the bad ‘old’ days: Fragmentation and a lack of consistency within internal infrastructures worsened the ‘confidence crisis’ from recent events<br />The bad “old” days:Traditional structure of trading operations<br /><ul><li>Siloed trading desks
    7. 7. Specialized skill sets (sales and traders alike)
    8. 8. Numerous, single-product front-end applications
    9. 9. Overlapping risk management, pricing and back-end functionality</li></ul>Source: Celent LLC<br />
    10. 10. Market Context<br />OTC processing activity chain – Crisis means that there is a stronger emphasis on certain ‘hotspots’ – in particular, derivatives pricing and risk analytics<br />Dealing<br />Post-Trade (ongoing)<br />Post-Trade Processes<br />Trade Capture – Order Management Systems<br />Trade negotiation & execution<br />Trade verification & enrichment<br /> Settlement calculation & management<br />Legal execution<br />Confirmation<br />Operations<br />Affirmation<br />Novation<br />Closeout<br />Collaterization<br /><ul><li>Bloomberg
    11. 11. Phone
    12. 12. Email
    13. 13. Phone
    14. 14. Email
    15. 15. Trade support inputs manually
    16. 16. Pricing
    17. 17. Non-standardized, often highly manual process
    18. 18. Deriv/SERV, MarkitWire, T-Zero
    19. 19. Electronic or Faxed
    20. 20. In-house systems and manual monitoring</li></ul>Transfer to risk / finance<br /><ul><li>Platforms (Creditex, Tradeweb, MarketAccess)</li></ul>Limits/ Position management<br />Counterparty assessment<br />Risk Management Lifecycle<br />Risk reporting<br />Regulatory reporting<br />Portfolio Measurement<br />Risk calculations<br />Risk feeds/ Reconciliation<br />Risk<br />Analytics (incl Pricing)<br />Market Data<br />Customer Data<br />Cash & Collateral management<br />General Ledger (GL)<br />Portfolio Reconciliations<br /> Valuation and Pricing<br />Profitability (P&L)<br />Finance<br />Payments<br />Transaction Data<br />
    21. 21. Disclosure<br />Valuations/pricing<br />Incentives<br />Accounting/capital<br />Market Context: Pricing and Valuation<br />Disclosure and valuation practices are most crucial for restoring market confidence<br />Average rating on 1-5 scale3.60<br />Relative importance of factors to restore confidence<br />Disclosure of information on underlying assets<br />Confidence in data and assumptions informing valuation methodologies<br />Confidence in valuation methodologies for individual securities<br />Disclosure of collateral underwriting and origination practices<br />Aligning incentives at the originator level<br />Standardisation and simplification of documentation<br />Aligning incentives at rating agency level<br />Public dissemination of actual trade prices for individual securities<br />Improved disclosure for exposure to securitised/structured product risks<br />Changes to mark-to-market accounting rules<br />Greater transparency regarding bid and ask spreads for reported trades<br />Aligning incentives at the dealer/arranger level<br />Revisions to rules for off-balance sheet treatment of securitisation vehicles<br />Alignment of institutional and individual incentives within firms<br />Aligning incentives at the servicer level<br />Aligning incentives at the investor level<br />Revision to regulatory capital requirements for securitised products<br />Source: Securities Industry and Financial Markets Association (SIFMA), American Securitization Forum (ASF), European Securitisation Forum (ESF), Australian Securitisation Forum (AuSF), Celent analysis<br />
    22. 22. Risk control, transparency and accountability dynamics are the new world order<br />Market Context: Pricing and Valuation<br />For complex portfolio valuations, firms are now pursuing new levels of transparency and procedural consistency<br />For originators and distributors of structured investments, independent valuation seen to assure investors and strengthen marketing efforts<br />Rise of independent risk (or product) control function for OTC operations in the sell and buy-side<br />Push to align and integrate analytics & models with front office trade capture, risk exposure or portfolio risk solutions to avoid traditional inconsistency and opaqueness associated with incompatible systems and data definitions, etc.<br />Model validation and quality control<br />Firms that are establishing good practices in this area of model validation activities establish governance frameworks to address model-lifecycle policies & procedures, testing & approval, model owner due diligence, independent model validation, as well as audit oversight  the latter few factors will have significant positive implications for the demand for robust pricing & risk analytics platforms<br />Greater alignment of pricing practices within various parts of the organization<br />Explicit segregation of responsibilities between front office and middle office revaluation functions – front-office independent from, but aligned with middle and back office e.g. structuring function uses Excel-based plug ins for pricing to be aligned with embedded pricing models in trading/risk systems. <br />Pricing<br /> Consistency and Alignment<br />Alternative Valuation Techniques<br />Model Validation<br />Risk & Product Control<br />Accounting & Reporting (incl. IPV)<br />Capital Adequacy Allocations<br />Front Office Structuring & Pricing<br />Collateral Management<br />Risk Assessment/ Measurement<br />IPV = Independent Price Verification<br />
    23. 23. Market Context: Business & Technology Priorities<br />Challenges faced across sell-side, buy-side and hedge funds are emphasizing new needs / vendor selling-points not related to specific functionality demands…<br />Customer issues / challenges<br />Implications for systems<br />Sell-side<br /><ul><li>Considering ASP, but are more interested in rigorous multi-asset solutions to eliminate redundancies.
    24. 24. Emphasis on robustness, scalability of processing
    25. 25. Stronger emphasis on user interfaces and dashboards
    26. 26. Partnerships and interfaces with analytics providers critical
    27. 27. Resource constrained (IT budgets under pressure), concerned about project and vendor risk
    28. 28. Increased flow demand (including commodities)
    29. 29. Prefer simplified views of product sets
    30. 30. Effectiveness and efficiency of product control processes
    31. 31. Demand for enhanced risk models (more scenarios, new models, wide coverage)</li></ul>Asset Managers<br /><ul><li>Overall ease of system integration critical: better integration with order management systems, middle office, reconciliation, etc…
    32. 32. Partnerships and interfaces with analytics providers even more critical
    33. 33. Drill-down capabilities required
    34. 34. Performance attribution and collateral management capabilities are in demand.
    35. 35. Focusing on core / profitable activities – risk averse (e.g. derivatives)
    36. 36. Increased awareness to counterparty exposure
    37. 37. OTC derivatives processing pain continues in back and middle office
    38. 38. Preference for integrated solutions
    39. 39. Demand for ad-hoc reporting tools</li></ul>Hedge Funds<br /><ul><li>Requested to provide (1) greater transparency and (2) provide information at greater frequency
    40. 40. Need for greater automation in reporting processes
    41. 41. Resource constrained
    42. 42. Strategies shifting (distressed debt, credit derivatives, etc) and less multi-asset requirements for new HFs
    43. 43. Need for less product complexity, simplified interfaces/GUI
    44. 44. Total Cost of Ownership (TCO) value proposition, specifically end-to-end ASP preference
    45. 45. Single screen for multi-product, multi-strategy
    46. 46. Refocus core products away from exotics
    47. 47. Ability to work easily with Hedge Fund administrators</li></ul>Source: Company reports, Oliver Wyman proprietary data, Client interviews, Celent analysis<br />
    48. 48. 11<br />Participant Poll<br />
    49. 49. Why Integrate with 3rd Party Analytics<br />Derivatives Valuation<br />Costs/ Reduced Margin<br />Regulations<br />Time to Market<br />Standardization<br />Transparency<br />
    50. 50. 13<br />Why Integrate with 3rd Party Analytics<br />Accelerate Your Time to Market<br /><ul><li>Avoid re-inventing the wheel
    51. 51. Focus on your core competencies
    52. 52. Keep pace with your clients evolving needs and regulatory requirements</li></ul>Stay Current<br />Utilize Best-of-Breed Solutions<br /><ul><li>Industry standard analytics
    53. 53. Transparent, trusted and recognized by your clients</li></ul>Reduce Development Costs<br /><ul><li>Drastically reduce research, development, and QA time and resource costs </li></li></ul><li>14<br />FINCAD Enterprise Solutions<br />
    54. 54. 15<br />FINCAD Enterprise Solutions<br />
    55. 55. 16<br />FINCAD Enterprise Solutions<br />
    56. 56. 17<br />FINCAD Enterprise Solutions<br />
    57. 57. 18<br />FINCAD Enterprise Solutions<br />
    58. 58. 19<br />Selecting the Right Analytics Solution<br />Meets Business Need<br /><ul><li>Provides required coverage
    59. 59. Vendor will work with you to expand coverage</li></ul>Operating Environment<br /><ul><li>Operating system support
    60. 60. APIs for multiple programming languages</li></ul>Regulatory<br /><ul><li>Supporting accounting standards</li></ul>Commercial Terms<br /><ul><li>Maps to your business model</li></ul>Flexibility<br /><ul><li>Control how instruments are valued</li></li></ul><li>20<br />Flexibility<br /><ul><li>Instrument types covered
    61. 61. Vanilla swaps to complex structures</li></ul>Trade<br />Model<br /><ul><li>Black-Scholes to Libor Market Model to Heston
    62. 62. How calculations are performed
    63. 63. Closed form vs. simulation</li></ul>Valuation Specification<br />Market Data<br /><ul><li>Market observables
    64. 64. Curve building and calibration</li></li></ul><li>Valuation Spec.<br />Market Data<br />Valuation Spec.<br />Model<br />Trade<br />Model<br />Trade<br />21<br />Flexibility<br />Market Data<br />Market Data<br />Market Data<br />Valuation Spec.<br />Model<br />Trade<br />
    65. 65. FINCAD Analytics Coverage<br />ASSET COVERAGE<br />Model Coverage<br />
    66. 66. 23<br />F3 SDK<br />Software Development Kit<br /><ul><li>Enables embedding or linking
    67. 67. Highly flexible due to separation of trade, model, and valuation method
    68. 68. Object-oriented interfaces
    69. 69. Stateful for complex analytics models and trades
    70. 70. Multiple platforms and programming languages
    71. 71. Scalable (multi-processor and grid)
    72. 72. Excel prototyping tool</li></ul>Operating Environment<br />Comprehensive Risk<br /><ul><li>For every trade, model and valuation method</li></li></ul><li>24<br />FINCAD Analytics Suite<br />Software Development Kit<br /><ul><li>Introduced over 10 years ago
    73. 73. Enables embedding or linking
    74. 74. Over 1,600 functions
    75. 75. Multiple platforms and programming languages
    76. 76. Stateless functional interface
    77. 77. Scalable</li></ul>Operating Environment<br /><ul><li>Consistency between functions
    78. 78. Prototype in Suite for Excel </li></ul>Ease of Use<br />
    79. 79. 25<br />Fair Value Insight<br />SaaS pricing engine<br />Highly scalable<br />Joint solution with ICAP who provides market data<br />XML based integration<br />Extensible architecture supports rapid deployment of new ‘trades’<br />Web Interface<br />Market Data<br />Valuation Engine<br />
    80. 80. 26<br />Common Attributes for All Solutions<br />Industry Standard<br /><ul><li>Extensive user base
    81. 81. Published financial models
    82. 82. Comprehensive documentation
    83. 83. Complete with examples and references</li></ul>Transparency<br />Dynamic Derivatives Library<br /><ul><li>History of evolving coverage and technology
    84. 84. Largely based on client and partner feedback</li></li></ul><li>FINCAD Alliance Program (FAP)<br />Full service partnership program<br />Understand your business <br />Build closer relationships with our partners<br />Enable our partners by leveraging FINCAD’s expertise<br />
    85. 85. FINCAD Alliance Program (FAP)<br />Provide the tools to create, market, sell and support solutions that use FINCAD Analytics <br />Provide our partners access to…<br />
    86. 86. FINCAD Alliance Program (FAP)<br />Provide the tools to create, market, sell and support solutions that use FINCAD Analytics <br />Provide our partners access to…<br />
    87. 87. FINCAD Alliance Program (FAP)<br />Provide the tools to create, market, sell and support solutions that use FINCAD Analytics <br />Provide our partners access to…<br />
    88. 88. FINCAD Alliance Program (FAP)<br />Provide the tools to create, market, sell and support solutions that use FINCAD Analytics <br />Provide our partners access to…<br />
    89. 89. FINCAD Alliance Program (FAP)<br />Provide the tools to create, market, sell and support solutions that use FINCAD Analytics <br />Provide our partners access to…<br />
    90. 90. FINCAD Alliance Program (FAP)<br />Different relationship structures based on your unique needs:<br />YOU ARE BUILDING…<br />YOU ARE PROVIDING…<br />
    91. 91. FAP Partner Types<br />Embedded Partner<br />Typically embed FINCAD Analytics within their Solution<br />FINCAD’s relationship in this context is only with the Partner<br />
    92. 92. FAP Partner Types<br />Solution Partner<br />Typically build an interface to the FINCAD analytics library to provide their clients a more complete solution<br />FINCAD’s relationship in this context is with the Partner and the Client<br />
    93. 93. FAP Partner Types<br />Service Partner<br />Typically work with FINCAD Analytics in client engagements (implementation, training, and/or consulting)<br />FINCAD’s relationship in this context is with the Partner and the Client<br />
    94. 94. 37<br />Program Benefits<br />ENABLE YOUR DEVELOPMENT & TECHNICAL TEAMS<br />Dedicated Support<br /><ul><li>Receive support during your product development lifecycle and deployment</li></ul>Professional Services<br /><ul><li>Custom development work
    95. 95. Training</li></li></ul><li>38<br />Program Benefits<br />ENABLE YOUR SALES & MARKETING TEAMS<br />Sales Resources<br /><ul><li>Gain access to FINCAD collateral including customized collateral
    96. 96. Joint sales calls, as merited</li></ul>Marketing Activities<br /><ul><li>Participate in joint marketing activities (i.e. webinars, case studies, press releases, etc.)</li></ul>Training<br /><ul><li>Receive product and sales training</li></li></ul><li>Typical Systems that Integrate FINCAD<br />SYSTEM TYPE<br />EXAMPLE OF FUNCTION<br />
    97. 97. FINCAD Partners<br />
    98. 98. 41<br />The FINCAD Advantage<br />Recognized Industry Leader<br /><ul><li>Analytics are market-tested and proven
    99. 99. Solutions used by more than 35,000 financial professionals in over 80 countries</li></ul>Maximize Your ROI<br /><ul><li>Comprehensive cross-asset class analytics library
    100. 100. Time to market
    101. 101. Analytics experts with quantitative analysts, developers and product managers developing solutions for tomorrow's analytic challenges</li></ul>Competence<br /><ul><li>Stable and growing organization focused on delivering the world’s best analytic tools</li></ul>Stability<br />
    102. 102. 42<br />Thank you!<br />
    103. 103. 43<br />Next Steps<br />For a more detailed review of FINCAD, contact us today:Tel: +1.604.957.1200Email: partners@fincad.com<br />Or visit our website to: <br />Request product trials<br />View on-demand product demos<br />Download datasheets and brochures<br />Read press releases and newsletters<br />www.fincad.com <br />

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