LexiFi: The key element around automation is not connectivity but defining standards

LexiFi, a developer of financial software for financial derivatives has increased its profile in the global structured products market following its agreement with Bloomberg in 2014 to supply its technology covering derivatives and structured products coverage. In the second part of an interview, Jean-Marc Eber, founder and chief executive at the software provider for financial derivatives, talks about what comes next in the structured products 'click and trade' platform segment, the challenges in a fragmented market and the tools that will make a difference around the pricing and management of derivatives and structured products.

What comes after the automation of standard products has been achieved?
At LexiFi we believe that offering pricing and a full post-trade service will be the next stage of development in the platform's segment. The current set up based on terms sheets and the automation around standardised products will be exhausted very soon. Only those offering a comprehensive service through the whole cycle that includes pricing and execution of complex structures will be the ones coming on top. I would say that it is early days for the standardisation of contracts around complex structures but we are working on developing a standard for the description method of complex contracts.

Is the platforms market fragmented?
Currently the platforms' market is fragmented with many different providers and set ups. Some issuers are opening their platforms to other issuers, others are joining efforts to provide price discovery in a multi-issuer set up, and you also have technology firms teaming up with issuers and distributors to create multi-broker platforms.
We have taken the opposite approach. Our focus has been on developing the tools to standardise and increase the automation of the processes, but it's important to emphasise that defining a standard is not a problem but developing the tools around that standard that work is a difficult task. We have defined the standards as we work on developing tools that work.

Can multi-issuer platforms cover complex products?
You cannot deny that these platforms have a role to play in the retail market as they provide a link between issuers and distributors. Platforms will reduce the operational cost, but the key element around automation is not the platform which provides that connectivity but the actual standards you are going to automate. The use of word documents as a standard is a good example of this. Once everybody agrees on the standard then tools can be developed and today you can download and edit documents with different software and tools. This is more important than having a centralised place to exchange and transact.
Once the market agrees on a standard language to trade complex structured products transacting these products will be much cheaper than today. To expand the capabilities of these platforms to support the management of the full life cycle of complex products can only be achieved with an agreed on definitions and description in financial contracts for non-standard structured products.

What's the role of exchanges in this segments? Do you see overlapping? Can you provide tools to exchange for them to transition to a multi-issuer platform set up?
We have been contacted recently by a major European exchange interested in building a bilateral platform for OTC trading aimed at structured products issuers. We are in a very preliminary stage in the discussion but this is prove that there is activity in this area with many different combinations and players involved. The market has changed significantly in the last 15 years in communication and automation but only with a workable implementation of the full cycle management of complex structured products will this market achieve its full potential. Connectivity is very important but without a common language is not of huge value.

What opportunities are you looking for in this segment?
We are aggressively targeting the Asian market and working with local partners to establish our footprint in one of the fastest growing market for structured products.
The US is not the dominant market when it comes to complex structured products, but we are also in talks with some firms in the US market which clearly understand their incapacity to manage the cycle of complex and non-standard products and are looking at tools to provide that capability. This is also at an early stage and not a priority for the business but the Americas is a region where we can grow our footprint.

LexiFi comes from a pricing background and we understand that the infrastructure problems around the management of the life cycle of products, and the standardisation of contracts for the middle office is as important or more than being able to price and value products. So we are expanding our scope from a pricing perspective to the automation of the life cycle of products.