There are several successful derivatives trading and risk management system vendors that now provide support for structured products. Most started with a focus on a particular asset class - mostly foreign exchange, interest rates, credit derivatives or commodities. Paris-based Sophis took a different route, and was a pioneer of equity derivatives software, launching its Risque system in 1992.
Since then, this equity derivatives focus, plus several specific features that the company developed for the system, has made it the first choice for a number of major players in the global structured products markets. A commitment to the Asian market has brought success, with a number of major institutions now using Sophis technology to support their structured products businesses.
In addition to equities, Sophis has added support for other asset classes to Risque, including fixed income, interest rates, foreign exchange, credit and commodities, so that it is now a cross-asset, front-to-back-office system with data management, pricing, portfolio management and risk analysis tools. While its initial sales thrust was into sell-side institutions, with clients such as BNP Paribas, Barclays Capital and Royal Bank of Canada, in 2001 Sophis responded to the demand from buy-side institutions - particularly hedge funds - for access to similar technology, and launched Value, a modular system that emphasised user-friendliness, connectivity and ease of implementation.
Sophis's 110 clients are now distributed roughly equally between the two systems, with 20 clients in Asia including HSBC and Bank of China International.
To support the very particular and demanding needs of structured product developers, in 2005 Sophis introduced the Structure Builder tool. This enables rapid product development and has complex pricing capabilities, including the ability to harness computing grids to speed up calculations.
"The Structure Builder tool has been very well received, particularly by the sales type of traders," says Nigel Ford, Sophis's Hong Kong-based business development director. "It allows them to develop structures on the fly, reducing what was once months of development time to hours."
Structure Builder also enables banks that are looking to make structured product deals with big players either to pre-calculate a price or to check the price they are being quoted, says Ford. And should they go ahead with the deal, the structured product can be taken directly into the Risque or Value straight-through-processing facilities.
Asia is a major growth area for Sophis, with the track record of the company's technology, its tools such as Structure Builder, and the relatively rapid implementation times finding favour in the region's dynamic markets.
Hong Kong-based Standard Chartered Bank (StanChart) chose Risque for its recently launched equity derivatives and structured products business. "Sophis was chosen not just because of its front-end capability in pricing structured products, although this was an important factor," says Bernard Yu, global head, equity derivatives and convertibles, capital markets, at StanChart. "The bank was looking for a front-to-back-end solution for equity-linked products, including convertible bonds, and Sophis met most of our needs."
It is a measure of Sophis's global presence in equity derivatives that although the system is new to StanChart, the trading team the bank hired for its new business was already familiar with the system. Furthermore, the open system design, interfaces and toolkit have made it easy for the bank to integrate Risque with its legacy systems, says Yu. And the Structure Builder tool "is very useful in pricing and booking most exotic products," he says.
Bank of East Asia (BEA), also based in Hong Kong, allows individual investors to create tailored, linked deposit products by choosing their preferred stocks, deposit tenor and trigger event prices to suit their risk appetite, return expectations and market view. This has proved extremely popular, but it would not be possible to support such a business without a sophisticated and flexible technology platform behind it. BEA uses Risque, which provides access to the pricing models and data for the custom products, as well as supporting their straight-through processing.
Risque is the backbone of BEA's equity derivatives activity, says Clarence Yeung, the bank's head of structured products. "Our business requires constant interaction with our technology vendors, and we do have a number of them. Sophis ranks top in almost all categories. Reliability, scalability and the ease of use make Sophis stand above its competitors."
A focus on equity derivatives, plus support for other asset classes such as interest rates, along with ease of implementation, tools for structuring and a commitment to the region have won Sophis high-profile Asian clients and our Asia technology vendor of the year award.
The week on Risk.net, December 9–15 2017Receive this by email