Misys achieves top awards in technology rankings. Number one trading systems vendor in foreign exchange and rates. Reprinted from

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1 Derivatives-based investments for retail and institutional investors Reprinted from P r i c i n g n a s s e t a l l o c a t i o n n r i s k m a n a g e m e n t MARCH 0 achieves top awards in technology rankings Number one trading systems vendor in foreign exchange and rates

2 Technology Rankings 0 Structured product innovation is entering a fertile ground as technology adapts to keep up with low interest rates, new volatility dynamics and inflation concerns. Clive Davidson talks to technology providers about the latest requirements and in-house product platforms from banks. Research was provided by Max Chambers > In many ways, structured products issuers are mediators, interpreting the needs of their clients, and weighing them against the often contrary realities of the market, then looking for innovative ways of reconciling the two. To make it even more challenging, neither element is constant not the end-users, whose requirements, preferences and demographics are constantly evolving, nor the markets, which are subject to global and regional economic forces and political and social intervention in the form of ever-mounting regulation. Success in such an environment demands insight, inventiveness, flexibility and the efficient execution of ideas. This is where technology partners come in. The creation of new structures, their pricing, distribution, trading, risk management and reporting all require software support, and having the most powerful, flexible and easy-to-use tools can bring a competitive edge to a structured products business. That is why choice of technology vendor can be so critical, and is considered so carefully by organisations. Structured Products technology vendor rankings reflects this process, demonstrating the discrimination that readers exercise in their choice of systems. The clear winner of the this year s rankings is New York-based, which garnered.6% of the overall votes, and topped all the pricing and analytics categories as well as the market and credit risk management categories. The steady demand for the company s products, even during the pull-back from structured products following the financial crisis, has seen its revenues grow more than 0% over the past five years. Meanwhile, is cautiously optimistic about the prospects for the structured products market in the immediate future. REPRINTED FROM STRUCTURED PRODUCTS MARCH 0

3 We see some green shoots around new structured products issuance, says Steve O Hanlon, chief executive of. The present environment in the US, for example, with its low interest rates, new volatility dynamics and inflation concerns, is fertile ground for product innovation, he says. We are seeing a lot more equity-linked products because that is an area investors are familiar and comfortable with, but they are also becoming more comfortable with volatility as an asset class and are investing in volatility products, says O Hanlon. In response, has been extending its analytics for inflation and volatility and has added a longevity/mortality asset class for insurance variable annuity products, bringing them into its hybrid analytic framework where all asset classes can be structured, measured and managed in a consistent environment. This includes the calculation of risk factors and funding costs. Institutions are increasingly looking to design products more holistically looking at the profitability end to end, taking into account everything from counterparty risk to liquidity risk, model risk and even operational risk across the full life cycle, says O Hanlon. has also devised a way to balance the competing demands of flexibility and usability in its analytics. Where the first is required to support complex product structuring and analytics, it usually comes at the expense of ease of use by non-specialists. What we have done at is package the complexity the scripting language, payoffs and so on and created a separate edition of our analytics that is geared towards non-quant users, such as traders and risk managers, who want to look at products and understand things like how they are hedged, says O Hanlon. Issuers can now format their structures in XML and deliver them to distributors who have the Trader & Risk edition of Cross Asset, where they are able to analyse the products in terms of things like value, cash flow and profit and loss profile, he says. Making the biggest advance in this year s rankings is New York-based Bloomberg, which topped the credit and equities trading system categories, swept up all second places in the pricing and analytics section, and came second overall. Institutions are increasingly looking to design products more holistically looking at profitability end to end, taking into account everything from counterparty risk to liquidity risk, model risk and even operational risk across the full life cycle Steve O Hanlon, Clients are turning to us to help with solutions that increase pre-trade transparency, price discovery and best execution, says Jose Ribas, global head of derivatives and structured notes at Bloomberg. Market participants need efficient, integrated analytics and electronic trading solutions that provide pre-trade analytics and market transparency especially in preparation for the [US] Dodd-Frank and [European] Mifid regulation. Structured products Top 0 technology vendors Vendor Bloomberg Pricing Partners Modelity IBM Risk Analytics market participants also need to take an integrated approach to risk management, and to this end, Bloomberg introduced a cross-asset risk management platform last year. The platform supports listed and over-the-counter securities, equities, foreign exchange, commodities, convertible bonds, loans, structured products, credit default swaps and interest rate derivatives, as well as cash products. The platform can also generate pre-trade custom scenarios to demonstrate how an entire portfolio or selected positions will be impacted by various economic conditions. This solution will help our clients comply with regulatory requirements for pre-trade price transparency, says Ribas. Another challenge faced by clients is the difficulty of achieving effective price discovery with the proliferation of exchange-listed structured products, which Bloomberg has addressed by consolidating data from exchange feeds in a single searchable solution. Our certificates and warrants portal feeds data from the leading exchanges [to the Bloomberg platform] and enables users to search products by different criteria. With this tool, subscribers are able to monitor the day s most active products by volume, and view the leading advancers and decliners by percentage or net gain or loss for a particular exchange, says Ribas. Third place overall in the rankings was London-based, which topped the forex and rates trading systems categories as well as being placed in the top five across many pricing and analytics and risk management categories. has seen a continued move in the market towards more standardisation of products and less exotic features, with a resultant increase in trading volumes and liquidity, but tighter margins, says Julie Barthes, Paris-based structured products product manager at. This in turn leads to a need for more accurate pricing and risk management as firms struggle to

4 = 7.% = Bloomberg.% Bloomberg =.% Pricing Partners.% Pricing Partners.7% 8.0% Technology Rankings 0 8.6% Markit 6.9% =.9% 0 0 Provider %. Pricing and analytics Commodities 9.%. Pricing and analytics Credit Bloomberg.9% Pricing Partners 0.9% 0 Provider % Bloomberg = Bloomberg 8.9%.7% Pricing Partners = 6.6% Pricing Partners Bloomberg 0.6% 0.% Pricing Partners 9.8% Markit 7.6% 0% % 0% % 0% 0% % 0% % 0% % 0 0 Provider %. Pricing and analytics Equities. Pricing and analytics Foreign exchange.7% 0 0 Provider % Bloomberg.0%.6% Bloomberg Pricing Partners 0.8% Bloomberg.7% 0.% Pricing Partners Bloomberg.% 0.%.0% Pricing Partners.6% 0% % 0% % 0% 0% % 0% % 0% %. Pricing and analytics Rates 0 Provider % = Bloomberg 9.% = Pricing Partners 9.% 6.0%.9% 9.% 0% % 0% % 0% % 6. Trading systems Commodities 0 0 Provider % Bloomberg 9.8% Bloomberg 7.%.9% 8.0%.7% 0% % 0% % 0% 7. Trading systems Credit Bloomberg 0% % 0% % 0% 8. Trading systems Equities 0 0 Bloomberg Provider %.8% 6.7% Bloomberg 6.0%.%.% 0% % 0% % 0% 9. Trading systems Foreign exchange Bloomberg 0% % 0% % 0% % REPRINTED FROM STRUCTURED PRODUCTS MARCH 0

5 7.6% Bloomberg 8.%.0%.0% 8.% 0. Trading systems Rates 0 0 Provider % IBM Risk Analytics.9% 0 0 Provider %.6% Bloomberg 6.%.6%.0% 0.0%.9% 7.% IBM Risk Analytics.% 0 0 Provider %.%.% 0 % % 0% % 0% % 0% 0.7%. Risk management Limits IBM Risk Analytics 9.%. Risk management Collateral management 8.% IBM Risk = Analytics.% 0 0 Provider %.0% = Moodys Analytics.%.% =.% IBM Risk Analytics 9.9% IBM Risk Analytics 8.% 6.6% 0% % % 6% 8% 0% % % 6 % 0% % 0% % 0% %. Risk management Market. Risk management Credit 0 0 Provider % IBM Risk Analytics 7.%.% IBM Risk Analytics Moodys Analytics 9.7% = IBM Risk Analytics 7.8% = Moody s Analytics =.8% = = SAS.8% 0% % 0% % 0% % IBM Risk Analytics Moody s Analytics = = SAS 0% % 0% % 0% % 0 0 Provider %. Risk management Regulatory/economic capital calculation 6. Risk management Preferred platform providers for Modelity.% pricing indications and product construction 7.0% BNP Paribas Smart Derivatives.8% Barclays Comet IBM Risk Analytics.% Morgan Stanley Stream Autobahn.% Credit Suisse Spirit 0% % 0% % 0% 0 0 Provider % BNP Paribas Smart Derivatives.9% Barclays Comet.% Morgan Stanley Stream.9% Credit Suisse Spirit 0.0% UBS Equity Investor 9.% UBS Equity Investor 0% % 0% % 0% % 7. Risk management Client interface and e-commerce platforms Modelity IBM Risk Analytics Autobahn 0% 0% 0% 0% 0% 0%

6 Technology Rankings 0 squeeze profit out of their product portfolios. And accuracy requires not only more sharply honed analytic tools, but also more fine-tuned data on which to base the pricing and risk calculations, both of which have been a focus of attention over the past year, according to Barthes. In addition to updating its pricing models adding a multi-curve framework for swaps pricing, for instance has been extending its support for structuring. In its Kondor+ trading and risk system, it has added templates for standardised reference instruments that clients can use directly in their structuring or customise to requirements. In addition, the company has developed wizard automated functionality that can help users implement changes to product designs quickly and efficiently. Two structured product areas where there has been particular activity and innovation are in designs that seek to circumvent or compensate for certain regulations such as restrictions on short selling, and structures for hedging global books, says Barthes. In the first case, products such as callable bull/bear contracts, which allow investors to The single biggest challenge faced by our clients, arguably, is the treatment of non-collateralised structured products and the correct assessment of the funding cost, or funding valuation adjustment Daniele Marangalli, take bullish or bearish positions on an underlying asset without paying the full price of owning the asset, are popular in Hong Kong, where short selling is banned. For hedging global books, firms are using a range of products, including volatility swaps, variance swaps and correlation swaps, and futures and options based on the CBOE Futures Exchange s volatility index, says Barthes. Pennsylvania-based took fourth place overall, winning the commodities trading and limits categories and featuring in the top five in many others. The company offers a broad range of tools for structured product market participants, including its Front Arena trading, risk management and operations system and its FastVal valuation service. Like, has introduced functionality to help clients with the new world of swaps pricing where an overnight index swap (OIS) curve is used for discounting separately from the Libor or equivalent curve used for forecasting. In the past months, we have released a completely new multi-curve approach to the pricing of structured products, enabling our clients to correctly account for the different conventions used in the market for discounting using OIS curves, or any other curve, and at the same time correctly treating the basis between the different forwarding curves. This new multi-curve approach has been developed consistently with all our risk neutral stochastic models, says Daniele Marangelli, London-based head of client services for s FastVal. Collateralisation of structured products is a particular concern for clients, says Marangelli, and the FastVal team has been advising users REPRINTED FROM STRUCTURED PRODUCTS MARCH 0 on how to treat the discounting and forwarding curves in a multi-curve swap environment and how to adjust valuations due to where the collateral currency is different from the currency of the product. However, the single biggest challenge faced by our clients, arguably, is the treatment of non-collateralised structured products and the correct assessment of the funding cost, or funding valuation adjustment (FVA). A central counterparty currently cannot deal with these products and many firms are waiting for the market to achieve some kind of consensus on a best-practice approach and methodology, says Marangelli. To help firms address this looming issue, is upgrading its FastVal FVA functionality to more comprehensively cover both collateralised and non-collateralised structured products, she says. Paris-based came in fifth on the back of top-five placings across all trading systems and risk management categories. Like, sees the low-margin environment of standardised products as upping the requirement in terms of accuracy of pricing and risk management analytics. This has a knock-on effect on performance, especially where stochastic methods are used for pricing and risk analysis. Performance is also an issue as volumes increase in a more standardised market. In this regard, is reaping the benefit of adapting its analytics to run on graphical processing units (GPUs) high performance parallel processing chips originally developed for computer graphics, says Maroun Edde, group chief executive of. He gives the example of an Asian firm specialising in equity exotic structured products, which has been able to treble the product volumes it handles while computing more accurate sensitivities and undertaking near-real-time risk analysis. For the coming year, will continue to focus on the accuracy and performance of its analytics and improving the transparency of its models as time required for model validation becomes more of an issue, as well as helping clients reduce the total cost of ownership of their technology by providing tightly integrated front-, middle- and back-office functionality in a single platform, says Edde. Paris-based Pricing Partners took sixth place overall, gaining third place in all pricing and analytics categories bar forex, where it came fourth. With the latest version of its Price-it Excel derivatives and structured products pricing software, the company introduced a simplified interface that consolidates the pricing process into a single screen, and comes with a range of product templates, including inflation, quanto and hybrid instruments. Once market data is loaded and the model selected, price and sensitivities are obtained with a single mouse-click without users having to know the Price-it scripting language, says Eric Benhamou, chief executive of Pricing Partners. Benhamou sees the fact that Pricing Partners provides not only pricing and risk analytics, but also offers a valuation service as a particular strength in the structured products arena. We always had in mind that Pricing Partners should combine selling software and

7 doing valuations. The two businesses have lots of synergies and we are surprised that so few companies do this, he says. Doing valuations keeps the company in touch with the market and aware of the challenges in replicating market prices, while developing software means the valuation service can keep up to date with market evolution. We provide market standard models in our analytics software business because we need them ourselves for our valuation service, says Benhamou. But while there are synergies, they are different types of businesses and require different types of people. You need to invest to do both. We intend to continue with the parallel businesses, he says. As part of this parallel effort, Pricing Partners has added support for proprietary indexes to its valuation service one of the first of which is French financial services firm Natixis Excellence index. These proprietary indexes, which use complex strategies and smart algorithms, are like structured products, and are receiving strong interest from investors, says Benhamou. The company also plans to provide risk sensitivities for the products and indexes it prices. Users will then not only have a [pricing] number, but can also get a feeling of how this number might change, says Benhamou. Vancouver-based is beginning to make a stronger challenge in the structured products market as its F generic structuring and pricing software matures and gains wider acceptance. The company was placed in the top five in all pricing and analytics categories and took seventh place overall. Although continues to have a successful business with its Analytics Suite pricing and risk analytics library, the flexible approach of F is proving particularly useful in the structured products sector. What we did with F was to decouple the financial engineering from the software engineering, says Bob Park, president and chief executive of. By separating the description of trades and portfolios from the construction of the financial models, and the valuation method employed, F provides a generic way to represent Accuracy requires not only more sharply honed analytic tools, but also more fine-tuned data on which to base the pricing and risk calculations, both of which have been a focus of attention over the past year Julie Barthes, any trade or financial structure. Although first released in 00, it has taken a little while for firms including issuers, valuation service providers and end-users to get to grip with its possibilities and exploit its potential. Also, has more recently added short-cuts and productivity tools to make the software more viable for use with vanilla products, which has increased it popularity. Ninth overall and winner of the client interface and e-commerce platform category is Tel Aviv-based Modelity Technologies. The company continues to dominate its niche in structured products How the poll was conducted The Structured Products technology survey 0 received valid responses. Respondents were asked to nominate, between January and February, 0, the firms that provide the best product offerings across different markets, such as market risk, credit risk, pricing and analytics, risk management, and trading systems and analytics, based on the functionality, usability, performance, return on investment and reliability provided by technology vendors. The pricing and analytics and trading systems sections were each broken down into subcategories that included: commodities; credit; cross-asset; equities foreign exchange and rates. The categories for risk management were market and credit. Nominated technology companies were awarded three points for a first-choice vote, two points for a second-choice vote and one point for a third-choice vote. Only technology end-users were allowed to vote. Structured Products verifies the validity of votes and discounts invalid votes. presentation, simulation and performance reporting software. The combination of structured products financial engineering expertise, cross-platform technological skills and operational infrastructure to run the services is for the time being proving a high barrier to entry for competitors wishing to challenge Modelity. Instead, the company competes primarily with in-house capabilities, but even here, many of the leading issuers, such as Barclays, Royal Bank of Scotland and Rabobank, have opted for Modelity s third-party services. Switzerland s Zürcher Kantonalbank is the latest issuer to hire Modelity to create interactive presentations to demonstrate how its various product types work and describe their fundamental attributes. End-user clients are able adjust market factors in the scenario simulators to visualise how these would impact product performance, says Eran Elad, vice-president of sales structured products at Modelity. The presentations and simulators work across platforms, including mobile devices such as Apple s ipad and iphone and Google Android devices, he adds. Toronto-based IBM Risk Analytics (formerly Algorithmics) topped the collateral management and regulatory and economic capital calculation categories and came tenth overall. The acquisition of Algorithmics by IBM is seeing the former s highly specialised risk analytics integrated with the latter s business analytics and powerful technology framework, from which an interesting new generation of enterprise risk management software is likely to emerge in the near future. Regulation, market volatility, the search for yield and the widening scope of underlyings are likely to remain themes of the structured products market in the coming year. There is no time for technology vendors to rest on their laurels if they are to help clients address the challenges these issues pose, and if they want to retain or improve their position in the Structured Products rankings next year. 6