In the world of structured products, it is not just necessity but also opportunity that is the mother of invention. Some clients require structures to meet specific needs, while others - both institutional and retail - are seeking to improve returns or exploit market conditions, though often within the confines of certain guarantees. With structured product designers applying considerable creativity and ingenuity to meeting these needs, their creations inevitably require some explanation and analysis - of how they work, how they react to evolving market conditions, what parameters are adjustable, where they provide benefits and what their risks are. These educational and analytical elements are so central to structured products that it is surprising that so few technology vendors are supporting issuers and distributors in this area.
A lack of generic technology is not the problem. Most investors are familiar with Flash animations, interactive graphics, data visualisation and touch screen technology in other areas of their life. In addition, various what-if type analytical tools are available, ranging from simple parameter substitution to powerful Monte Carlo simulation. Modelity Technologies has seized this functionality and married it to a deep understanding of structured products financial engineering and marketing requirements to come up with Modelity/Structures - a toolkit and set of services that has been enthusiastically embraced by many leading issuers and distributors across Europe and elsewhere.
Modelity has continued to evolve its capabilities, and this year has added several innovative features. Realising that it is no longer possible to assume users will be sitting at a desktop PC or laptop, the Modelity platform now automatically detects what device is being used to run presentations or tutorials and adapts its code accordingly. If it is an iPad or iPhone, for instance, the platform will transmit code that allows multi-touch capabilities such as two-finger zooming. Interactive features in presentations and tutorials are now also available offline as well as via the internet, while reporting for professional investors has been enhanced to support complex calculations for decision-making, such as the consequences of holding or exiting positions and verification that a product's current risk meets the client's risk profile.
Another new feature recognises that corporate actions in underlyings, from simple payments to more complex events such as spin-offs and mergers, are handled differently by various institutions - for example, some take Bloomberg's adjusted prices following a corporate split, while others have their own policies and formulae for recalculating strike prices and dividends. Modelity/Structures now responds to corporate actions according to the user's pre-defined preferences and adjust reports appropriately.
Zurich-based Zürcher Kantonalbank (ZKB) uses Modelity's Flash product tutorials in meetings with institutional clients and when providing education about new products to its retail relationship managers, who in turn use the Flash tutorials in client meetings. "Modelity's tutorials provide an interactive way of explaining structured products to investors who are not familiar with such investments," says Katharina Thölén, structured products sales executive at ZKB. The bank also uses Modelity to generate performance reports for the products it issues, which are sent to clients and made available online. "Thanks to this, our clients have 24/7 access to a detailed breakdown of the value of their products," she says. The bank also uses Modelity's enhanced functionality to include corporate actions in its product reports. "This is a complex topic and we are happy to have found such a reliable partner."
Elsewhere, Modelity has developed a module that recommends suitable products to financial advisers and clients according to their market view. Using the module, users can specify market scenarios and compare the performance of a number of products in each scenario. An early adopter of the scenario-driven product selection module is SIP Nordic, which distributes Royal Bank of Scotland (RBS) products in the UK. And a London-based head of investment strategy at a major global bank that has also adopted the module says: "This is an excellent toolkit - it is modular, flexible and intuitive to use."
Eran Elad, vice-president, sales, structured products at Modelity, says: "Our knowledge of the structured products market means we can look at clients' problems and advise on how to solve them, as well as providing the tools to do it." In addition to ZKB, SIP Nordic and RBS, Modelity has clients across Europe, the US, Israel and South Africa, including Bank Hapoalim, Barclays, CIBC and Rabobank, says Elad.
While Modelity's technology can be installed in-house, it is also available as a pay-as-you-go service for smaller institutions or those that don't have the sales volumes to justify local implementation. "Modelity/Structures is based on a set of powerful engines where you can easily define different types of structured products and adapt products to changing markets, so we are able to help our clients achieve a short time to market," says Elad.
The week on Risk.net,October 14-20, 2016Receive this by email