01 Nov 2010, Michael Marray, Structured Products
Modelity Technologies is steadily carving out market share in the structured products sector with its range of analytics and modelling tools that can allow providers to entirely outsource their IT requirements.
The key for Modelity has been to move the structured products technology market on from its traditional focus on pricing tools, towards a broader appreciation of the economies that can be obtained from purchasing external technology services to improve the design, testing, marketing and post-sales support of structured products.
Its client-facing system Modelity/Structures is aimed at both issuers and distributors of structured products. The aim is to demystify the complexities of these products by providing solutions that enable advisors and clients to fully understand the logic of product, and the benefits and risks across its lifetime.
This is especially important in an era of increased regulation, when a whole range of directives from the European Union, and within individual jurisdictions, are calling for greater transparency on pricing and risk.
This is putting distributors under pressure to ensure that their sales forces fully understand the products that they are selling - something that was not always the case during the market boom from 2005 to 2007. "By ensuring that our system is intuitive and may be used by financial professionals with no programming skills, we have stimulated demand for structured products technology beyond pricing tools," says Eran Elad, product manager at Modelity Technologies.
Interactive Flash presentations can be generated with voiceovers, and clearly presented and colourful graphics make the system easy to use. "The aesthetics are important, since they are telling the sales people not to fear the product, or think that it is too complex," says Elad. "A distributor may have thousands of sales people across a region, and if they only fully understand two out of 10 products they will only sell those two."
As part of the regulatory compliance process, most providers now set up tests for each product to be taken by their in-house sale forces and offered to third-party distributors. Modelity provides a simple question-and-answer format in which a salesperson can find out the most interesting points of a product's structure and payoff, and the risks it represents to investors under various scenarios.
Banks report that they have been able to improve both their speed to market with new products and the timeliness of their reporting processes. "We are using Modelity to handle the reporting on our entire product back catalogue," says one banker in London. "Its systems have already allowed us to increase the frequency of our deal reporting. We are heavy users of the firm's programs and we intend to make even more use of them in the future."
As the structured products industry is characterised by constant change, one of the key factors in gaining a competitive edge is to be the first to introduce innovative ideas into the market. Therefore Modelity/Structures provides a technological platform that allows the definition of new products, the modelling of new payouts, and the generation of interactive rich internet applications that can reflect the new features of innovative products.
The Modelity engine allows users to define product logics without programming skills. The payoff results can be designed easily by the user, and can be exported to various platforms and technologies such as Java/Flex/Reporting tools. The system's payout definition library is similar to standard term-sheet formats, which may help progress towards standardised definitions for structured product logics in the future.
An example of innovation over the past year has been its automated generation of Flash product presentations ending with an interactive performance simulator. The client provides the basic term-sheet parameters of a product, which are then input into a Flash-producing product family template that immediately generates a Flash presentation explaining the product. It ends with an interactive performance simulator including future scenarios, which again are created extremely quickly.
The system exports not only the product explanations, but also the logic into the Flash object, which is therefore independent and can be embedded into other websites, whether in-house or public, as well as laptops, smartphones and other applications, without the need for cumbersome integration.
Modelity has steadily built up a roster of high-profile clients in the structured products industry, including Royal Bank of Scotland and Barclays Capital in the UK. It also has large bank clients in France and Italy, and is very strong in Scandinavia with clients including Danske Bank Sweden and Nordea in Finland. The company has offices in Milan, Delft in The Netherlands, New York and Tel Aviv.
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