Wall Street & Technology's OTC Derivatives Weblog

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Intrigued by Vhayu’s announcement of a complex event processing tool geared toward quant researchers, yesterday I looked at this software. It gives quants a means to look for patterns, test ideas and strategies and run what-if scenarios against massive volumes of real-time and historical tick data. It combines some of the features of mathematical algorithmic modeling tools (such as Numerix and Algorithmics) with a fast historical and real-time tick database (a la Vhayu, Kx) with a front-end complex event processing graphical user interface (in the vein of Progress Apama, Streambase or Coral8).

You know markets are suffering when the latest new features vendors tout for their products have to do with liquidation pricing. This morning, SuperDerivatives announced it will provide the liquidation price (or ’exit price’) of all derivatives held within clients’ portfolios. Under the terms of FAS 157, firms are required to define the exit price of all instruments to calculate fair market value or "…the price that would be received to sell an asset or paid to transfer a liability."

La plus ca change, la plus c'est la meme chose -- when I mix my eighth-grade-level French with a report the Aite Group released this morning on buy-side OTC derivatives processing, this is what I come up with. As we reported last summer, sell-side firms (with a major push from the Fed) are working hard to automate derivatives processing; but buy-side firms are not.

In news accounts about Societe Generale's recent trading fiasco, there were mentions of how the operations department was called "the mine" and all Jerome Kerviel wanted was to get out of there and become a trader. The International Herald Tribune reported that in 2006, a man working in Societe Generale's back office operations killed himself on a suburban train. This made me wonder -- is it time for a change in the way operations is viewed? Maybe the people responsible for settling billions of dollars worth of trades shouldn't be abused or treated like peons.

In the wake of the subprime mortgage crisis and subsequent plummeting in value of mortgage-related derivatives such as CDOs, which in turn has generated a crop of unhappy investors, lawsuits and regulatory concern around improperly sold and priced derivatives, it's no wonder that companies that offer help in determining the value of derivatives contracts are coming out with new products. While many (Numerix, Maplesoft, Quantify) offer pre-built mathematical models for calculating the theoretical value of a derivative now and in the future, Markit, a provider of several derivatives indices, strives to provide actual prices at which certain types of derivatives are currently trading. (Reuters and NYSE Euronext also offer such derivatives valuations.)

Hedge fund administrator Columbus Avenue Consulting, LLC, selected the Super Derivatives Credit derivatives platform, SD-CD, to price its hedge fund clients’ portfolios of credit default swaps.
The decision points to a growing demand for independent valuation sources, as hedge fund portfolios are hedging or placing bets on the fixed-income market using credit default swaps or indexes.

UK data supplier Markit announced an agreement to acquire Swapswire, an electronic trade confirmation network backed by dealers for processing OTC derivatives. Financial terms were not disclosed. The acquisition is expected to close in early 2008.

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