Contributor: Franck Rossi, Product Manager
Low interest rates and a derivatives market worth $600 billion
dollars is creating significant opportunities. Banks prepared to
expose themselves to increased levels of risk in exchange for
higher returns are showing plenty of appetite. Our 'Openness'
initiative responds to this market requirement, and will provide
structuring functionality to all standard Kondor+ instruments.
Customers are finding new ways to invest as they attempt to
increase their current margins. This has caused a shift from
proprietary trading to increased levels of sales business, which in
turn is driving a demand for new structured products across the
globe.
We have launched Project 'Openness' in partnership with our high
profile Client Advisory Board. The goal is to develop a single
platform that significantly improves flexibility, integration and
transparency within the trading system. The improved functionality
will help banks and traders to differentiate the services they
offer their customers. They will be able to do this by designing,
trading, and processing customized trades with third party or
proprietary analytics; together with all 'standard' Kondor
instruments and market data.
Flexibility
Of course, time to market is essential when trying to maximize
small windows of trading profitability. Banks need tools with
sufficient speed and flexibility, to enable them to adapt trading
instruments to a customer's requirements. By developing 'openness'
in Kondor+, we can offer clients a new level of flexibility that
permits them to implement any external pricing library. At the same
time, Kondor+ new flexibility will allow users to re-use deals as
templates. In this way, they can quickly create new and robust
instruments that are built on a framework that is already
proven.
The objective of the 'Openness' project is not to deliver a new
structuring tool, but to increase the level of flexibility
available for all standard Kondor+ instruments. This will provide a
level of functionality that is typically only available with
complex structuring tools. Customers will soon be able to modify
the payoffs on standard deals. For example, if you have a deposit
you can create a dual-currency depository (a combination of a
deposit and two FX options).
Transparency
The demand for innovative financial products continues. This
creates a strong drive to increase system flexibility to meet the
appetite for these products. However, the increased level of
flexibility has a double-edge - it must be combined with an equally
high level of transparency in the valuation process. Adequate
safeguards are necessary, and, for this reason, visibility and
control are key considerations for our 'openness' initiative. The
new Kondor+ functionality will provide a level of transparency that
will enable full visibility across front-to-back office
operations.
Integration
The incorporation of powerful KSP components (e.g. pricing
service, extensibility service, and market data service), within
Kondor+ will reduce the number of applications clients use, and
provide functionality across multiple systems. For example, the new
platform will include the pricing component of KSP in a way that
enables clients to use the library both for structured products and
their flow business. The benefit is that a client will then only
need to integrate and maintain a single library. The new platform
will also provide a repository for market data including the new
data used within the pricing library. Besides being compatible with
all Thomson Reuters components, it will allow customers to
integrate the library with third-party systems - thanks to an
Application Programming Interface (API). In addition to this, we
are developing our market data service. The effects of this will be
to extend the market data required by the newly integrated model,
but not accommodated within the standard software; as well as
helping to centralize this market data. For example, a regional
bank with branches in Hong Kong, and headquarters in London will
now be able to share all its market data through a central
repository.
Over the past months, a group of our key clients have formed a
working group to develop the functionalities outlined in this post.
Please contact Franck Rossi at franck.rossi@thomsonreuters.com if
you would like to know more about the project.