Derivatech wins first options risk software deal in China

Bank of China has licensed FX options software from US-based vendor Derivatech, in what marks the country’s first forex risk management software deal.

"As the market-maker in China, not only do we need the best FX options pricing, analytics and risk management capabilities, we need the system used by the best banks in the world," said Qianyong Lai, Bank of China’s head of foreign exchange options. "We chose Derivatech since it is the international standard in FX options solutions."

He added that the software, called dt Compass, is also able to handle a large number of exotics and is flexible in terms of generating reports, which were two other key selling points.

"This is the first deal of its kind in the fastest growing market in the world," said Nicholas Hatzopoulos, New York-based chief executive of Derivatech. "Derivatech’s functionality and risk analytics will help Bank of China with its desired initiatives of growing the business with effective risk management practices in place."

Risk management tools are particularly important for options deals in China because there is uncertainty over which firms are authorised to trade in this growing market, said one foreign exchange options head at a European bank. "You have to be very careful about the capacity of a counterparty to engage in a transaction."

Bank of China is the first government-approved bank to offer forex options in China. But there is also a growing offshore renminbi options market that hedges for corporates based in Taiwan and elsewhere in the region.