Numerix: the best risk solutions are only as good as the pricing data below

In the second part of an interview, Steven O’Hanlon (pictured), chief executive officer at Numerix talks about how the integrated multi-issuer investment products distribution system (IPDS), launched with DBS, Leonteq and Avaloq in March in Singapore, will help products providers to streamline the full life cycle of the product management process, and the company’s plans on the back of the regulatory overhaul in the financial markets.

What does IPDS offer to issuers and distributors of structured products? What’s its differentiating factor?
What we have done with IPDS is further leveraged the RFQ (request for quote) functionality we developed for DBS, where new structured products can be dynamically modelled and priced on the fly, increasing price discovery by tenfold. Clients can now email the terms of a product to DBS and provide pricing to traders in a matter of seconds. The whole communication process between traders and clients/advisers has been streamlined and that has improved the life cycle management process.

Taking into account the maturity of the Asian marketplace, it’s our goal to help product providers such as DBS increase time to market for bespoke trades, not only standardised products. Clients are looking to providers that can customise products and provide them with solutions that are tailored to specific risk profiles. The ability to provide bespoke solutions will be a competitive differentiator for IPDS. We see this as the underlying value of the partnership between Numerix, DBS, Avaloq and Leonteq.

Are there any issues of suitability around multi-issuer platforms?
The issues surrounding the structured products market are becoming more mature. In particular, the distribution of structured products in the retail channel has been clouded by controversy, and suitability now plays a very important role. Multi-issuer platforms will bring transparency and efficiency to the market, not only around price discovery, but in terms of cost-effectiveness and scalability.

What other tools/services are on Numerix’s pipelines?
We are working on a number of initiatives around risk management that evolve way beyond price discovery. For example, we have developed solutions to address derivatives pricing and risk management in a negative rate environment. Interest rates as an asset class have gained momentum and we are managing several requests from clients for products and tools that take into account all types of interest rate scenarios.

We are very proud of our latest additions around XVA (single platform for enterprise level risk management and front office risk calculations) and counterparty credit risk. Tools for real-time risk and pre-trade analysis enable empowered decision making in the front office. We are also planning to deliver new functionality that will not only capture front office risk in real-time, but also capture elements of market risk in a single view.

Has regulation played in the hands of financial firms able to bring transparency to the market?
The financial regulatory overhaul has further positioned Numerix as the market leader in structured products pricing and valuation, and enabled us to launch and continue to grow our risk business. The best risk solutions are only as good as the pricing data underneath it. You need consistent data across-asset classes not only for vanilla instruments, but also for exotic and OTC products. This is where Numerix brings value providing a single platform that brings consistency of analytics, fast and accurate results that scale. Our response to the regulatory changes of the last few years has resulted in the biggest growth Numerix has ever seen. We have developed a product in line with the new regulations from a risk and transparency perspective. We’re now in a position to sell our independent pricing tools, in addition a full framework for pricing and risk management.

How important is scalability/flexibility when building a multi-issuer platform?
With high levels of scalability sometimes comes complexity. We have built our platform to be scalable, adaptable and flexible. The goal is to build a complete enterprise risk management system that allows customers the flexibility and transparency to define instruments, curves and risk scenarios, while also enabling them to scale the performance in real-time.

What are Numerix growth plans in the short term?
We are now moving from a stage of organic growth to one that would be acquisitive. We have plans to grow our company by acquisition and there is a possibility that our first acquisition will be close to our New York headquarters. In the Asian market, we are still growing our business organically. We entered the Asia-Pacific region in 1998 and at the time we saw the Asia-Pacific market as a key driver for growth. Today, we have nine offices in the region (Japan, South Korea, Taipei, Beijing, Shanghai, Hong Kong, Sydney, Mumbai and Singapore). We are also working on partnerships with governments and other domestic firms to be able to expand our footprint rapidly in some of those markets, and meet the needs of today’s diverse derivatives market participants.

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Numerix: the best risk solutions are only as good as the pricing data below