Technology provider - Numerix

Structured Products Americas Awards 2008

The trading and pricing technology market for structured products is relatively young by derivatives standards. It could also be called disparate and fragmented in terms of not only the systems offered by technology vendors but by the platforms used by investment banks. But pricing and analytics provider Numerix is confounding the disjointed nature of the market. Its partnership with Bloomberg has proved to be an influential move, building a much-needed bridge between the buy and sell side and making its pricing and structuring models available to anyone who has access to a Bloomberg terminal.

Numerix, which added more than 100 clients during 2007, announced with Bloomberg in June 2007 that subscribers to the Bloomberg Professional service would be able to use Numerix pricing and risk analytics. This means that buy and sell-side firms have the capability of independent valuations of their investment positions without depending on subjective quotes from brokers. Put more simply, this will allow anyone who subscribes to the service to access independent pricing and risk information for structured products and exotic OTC derivatives.

The move has been extremely well received among industry participants. "It is great to know that Numerix and Bloomberg have teamed up to further address the needs of their clients," says Zamir Iqbal, principal financial officer at the World Bank in Washington DC. "The tight coupling of Bloomberg data with the structuring power of Numerix Bloomberg Edition will foster growth of structured products across the global capital markets."

It also introduced Numerix Bloomberg Edition, which is based on Numerix 6, its flagship pricing software, analytics for users who wish to build their own structures using Numerix scripting capability. The edition contains more than 100 production-ready Microsoft Excel templates for fixed-income, credit, equity and foreign exchange structures. The structuring capabilities are available to Bloomberg users as an additional feature on the professional service.

Essentially, the main thrust of the partnership is that front-office traders will be able to continue to use Excel with market data from Bloomberg to structure a new product. They can then upload the trade to Bloomberg and send it via the messaging service to clients, who can then price it and save it directly into their databases. It is a process known as round-tripping the data from market data down to the trade back-up.

"What is unique about the relationship is that it is broken down into two core components," says Steve O'Hanlon, president and chief operating officer of Numerix in New York. "One is that we offer our analytics that are made available to their customers on the professional services in the form of static calculators, which enable clients to price a structured product such as a snowball or a snowblade. The second, which is what makes it unique, is that Bloomberg allows us the ability to sell our Excel version of Numerix 6 over the professional services to their client base, which numbers more than 250,000 of whom 70% are buy side and 30% are sell side. We have been able to take our Numerix 6 product and 'Bloombergise' it."

Apart from leveraging the Bloomberg platform, Numerix has had to thoroughly enhance both its Numerix 6 and Portfolio software. The former has been improved with an inflation module, expanded bond and exotic equity capabilities and several new complex hybrid models.

In the face of growing demand for exotic derivatives from the Americas market there has been a big uptake of equity products in the US, says O'Hanlon. "Everything from equity-linked notes, varieties of range accruals to more exotic priced products," he says. "One multinational insurance company, which said most of the new demand for structured products is originating from the US, recently used Numerix to price an FX-linked variance swap on a fixed date. It was very exciting that an insurance company in North America would be dealing this sort of product." This means the product had a specific hedge for a swap in the future, which was quantitative as there was an FX-linked component that paid the excess of any cap that was, in the past, over 11%.

Numerix has also managed to maintain its partnership with technology vendors which integrate Numerix systems, a list that includes Calypso, Misys, Reuters and Wall Street Systems. "Numerix analytics were chosen as having the appropriate ease of integration, status as the market standard for valuation and breadth of structured product pricing coverage," says Thomas Bergqvist, EVP product management treasury, Wall Street Systems.