Structured Products Asia Awards 2016
The growth of local and regional players across Asia's structured products markets has certainly created some losers, principally the once-dominant global lenders that are retrenching and shedding market share to newcomers and resurgent local houses. But the accompanying surge in demand for off-the-shelf pricing platforms from those looking to quickly fill the void has proved a boon for service providers, with Thomson Reuters' Pricing Service (TRPS) in the vanguard.
The vendor's offering has found favour with many Asia-Pacific firms for its capacity to support pricing with straightforward functionality and a short learning curve. Thomson Reuters has integrated the tools it gained in 2013 with the acquisition of Pricing Partners into the wider Thomson Reuters network. It claims to cover more than 2.5 million fixed-income securities, derivatives and loans that are priced daily, ranging from collateralised debt obligations to structured notes.
"We see rapid growth in the structured products market," says Wenlin Juang, head of pricing and reference services Asia at Thomson Reuters. "The demand from investors for return is driving the creation of more sophisticated, complex investment portfolios. At the same time, regulators are becoming more stringent in terms of compliance in valuations transparency reporting."
From a technology perspective, the firm had to put in place a system that could simultaneously handle pricing of multiple scenarios and multiple clients. That required joining up several processes from different Thomson Reuters products, enhancing processing to handle increasing volumes, and effective communication between the other products within the company.
In some of the smaller markets, we are seeing a shift as the number of regional banks participating is increasing
Sam Tsui, S&P Dow Jones Indices
These include the Price-it Framework, a solution acquired as part of Pricing Partners' offering, which provides the application programming interface needed to port pricing capabilities into client systems. It also integrates an analytics suite, the Price-it Library, which hold the models methods and product description necessary to provide pricing capabilities.
"The Thomson Reuters Pricing Service is an advanced system," says one Asian issuer. "Compared with other product definition systems, it is very innovative and flexible. Through defining payoff, we can price a variety of exotic derivatives easily. It allows us to exercise market risk valuation such as several types of value-at-risk and stress tests very efficiently."
To provide the service via a browser, the firm had to develop an architecture that was capable of effectively handling multiple processes at once without blocking each other, which would have caused a bottleneck in the speed of processing.
The service uses shared memory to handle market data, pricing configuration and common settings between the end-user's and the pricing engine's processes, as well as when aggregating the results. By structuring the flow of messages to avoid bottlenecks, multiple users accessing the system simultaneously is not a problem.
"In Asia, we deal with two types of customer: we have multinationals and large regional financial institutions, which have well-resourced IT teams, and we also have clients that require off-the-shelf products," Juang says. "We have to be flexible and nimble to cater to both of these needs. In the structured products world, one of the areas in which we are seeing growth is private banking, especially in Singapore. The trend is line with the growth of high-net-worth (HNW) individuals in the region."
One Japan-based wealth manager, responsible for delivering structured products to HNW and wholesale clients, says: "Thomson Reuters' service is outstanding for its speed of pricing and ease of understanding, which is very different from the firm's peers. For example, if we had an issue with pricing, we can easily communicate via the technology team in Paris or Hong Kong. They reply within a day and their service is very good."
Traditionally, Thomson Reuters has garnered a sizeable part of its business in structured products from larger global players pushing sophisticated products to institutional investors. While that still holds true, the firms sees more rapid growth emerging from the greater participation of regional banks, says Juang.
In the past 12 months, the firm has enjoyed partnerships with NAB Asset Servicing, to provide complex data content including market data, exchange-traded pricing and reference services, and with Fubon Financial Holdings Company for structured product pricing and portfolio risk management to underpin its risk management architecture.
"In some of the smaller markets, we are seeing a shift as the number of regional banks participating is increasing. That said, a handful of global banks in Asia still play the major role."
Ambitious regional players need specialist support in developing their capabilities quickly and effectively in order to service new clients, and in some instances to step in where larger firms are withdrawing. Clients are positive about the capabilities Thomson Reuters' system offers them, and about the firm's ability to respond to requests and solve issues as quickly as possible.
"The system's precise and efficient pricing capabilities have allowed us to conduct many stochastic evaluations, which assist us in handling the risk of our exposure very well," says one Hong Kong-based user. "We generate scenarios using our own systems, and then pass them on to TRPS to progress heavy calculations. The calculation results allow us to realise our risk profile more transparently and more clearly."
Another user in Japan notes: "Previously, we evaluated the market risk of exotic products using a sensitivity-based model. This method was very rough, and [can lead to us] underestimating risk. Now, we can use full valuation models to evaluate market risk."
Looking ahead, Thomson Reuters expects to further develop its risk and regulatory content to handle tighter financial market regulation in the Asia-Pacific region.
"Many of the new rules focus on areas such as pricing transparency, investor disclosure and due diligence," says a Thomson Reuters spokesperson. "To that extent, we are enhancing our data and workflow tools to power the investment, risk and compliance systems of our customers and help them stay one step ahead of the regulatory curve."