DrKW broadens its horizons

Dresdner Kleinwort Wasserstein has launched CreditHorizons, a credit risk and portfolio management system that covers a wide spectrum of credit instruments. The service is delivered through the RiskTracker website.

Previous portfolio risk assessment systems used numerical analysis to work out net portfolio risk: asset managers knew the aggregate level of risk, but not where various risks were coming from. CreditHorizons attributes the risk to individual credit instruments, allowing asset managers to know exactly which securities are causing changes to net portfolio risk.

It does so by taking instrument-specific credit models and aggregating their results. It is the first platform to deliver a portfolio-level analytic.

CreditHorizons is also the first system to aggregate risk from CDOs into net portfolio risk on an attributable basis: that is, assessing the risk from the individual assets that comprise CDOs.

With growing standardisation in the structured products market, CDOs are coming closer to being a distinct asset class. Once the preserve of buy-and-hold investors, CDOs are now market-tradable and have benchmarks – therefore market risk. This added layer of risk makes CreditHorizons attractive to the CDO investor base.

Evan Kalimtgis, head of credit portfolio strategy at Dresdner Kleinwort Wasserstein, says: “CreditHorizons opens up a structured asset class to a new group of investors who require transparency, consistent aggregation within an asset management framework.”

CreditHorizons began life is an in-house risk management tool. DrKW started working on a client version of the system earlier this year.

AMarketAxess service

US credit trading platform MarketAxess is launching an intra-day credit derivatives data service in the fourth quarter. The company will be the first multi-dealer data provider to offer real-time credit derivatives data to the buy-side sector.

Chief executive Richard McVey says MarketAxess will provide prices on between 100 and 300 of the most liquid global credit default swaps. The data will initially only be available to MarketAxess’s buy-side clients and will be delivered through the company’s corporate bond platform.

McVey says that the company has seen increased demand for credit derivatives price data from its institutional clients. “The source of the interest is to look at credit default swaps as an indicator of what is happening to their credit,” he says. McVey says that MarketAxess will initially include prices from four or five of the market’s largest dealers, though the exact names are yet to be confirmed. The increase in transparency could also lead to a growth in the numbers of buy-side firms using credit derivatives, says McVey.

“Most investment managers have to seek approval to trade credit default swaps,” says McVey. “The only way they can get approval is if they prove they have fair access to the data on a daily basis.”

However, by the same token there is the danger that investors may be “lulled” into a false sense of the market’s liquidity, says Tim Barker, chief executive of UK derivative price provider Totem Valuations.

“There is a significant risk that services that provide prices on a daily basis will imply liquidity that’s not there,” says Barker. “Publishing daily prices on single-name credit derivatives that trade once every three months, and implying there’s a market in this when there isn’t, doesn’t help anybody.”

AMore technology news...

• Mark-It Partners, a London-based provider of credit derivatives information, is working with Standard & Poor’s to produce Cusip numbers for the names within the Reference Entity Database (Project Red). Cusip numbers will consist of a six-digit code for each of the 1,000 names covered within Project Red, which otherwise must be designated by their full legal name. The initiative is expected to speed up transaction times. Red is a database designed to clarify which part of a company, whether the holding company or an operating company, is being referred to in a credit default swap contract.

• Four new banks have signed up to be market-makers in Morgan Stanley and JPMorgan’s Trac-x product – a basket of credit default swaps which can be bought or sold. The addition of the four banks – Barclays Capital, CSFB, Nomura and UBS – brings the total number of market-makers to seven. BarCap hedged its bets by also signing up to make a market in iBoxx’s basket-linked note, taking the total number of banks trading the iBoxx product to six.

• Application Networks, a provider of risk management and trading software based in Palo Alto, California, has improved its JRisk product to be able to trade credit swaptions. The software is also able to assess the risk of credit swaptions and synthetic collateralised debt obligations in a portfolio.

• Danish bank Nykredit has joined the BondVision trading platform, taking the number of participating dealers to 26.

• DST International is developing a fixed-income attribution product to complement its HiInvest suite of portfolio management products, to be released in February 2004. It will be able to perform calculations at both portfolio and sector levels and will be available either as a standalone product or as part of DST International’s HiPerformance or HiRisk software.