Goldman Sachs To Offer Derivatives Trading and Risk Services to its Prime Brokerage Clients

In an effort to further enhance its prime brokerage offering, Goldman Sachs is jumping on a new risk management bandwagon with its recent deal to offer clients of its GSI Prime Brokerage unit Imagine Software's Derivatives.com functionality as an ASP for derivatives trading analysis and risk management. Goldman is the latest to offer this technology service out to its hedge fund manager clients, following Deutsche Bank Alex.Brown's decision to extend the service out to its global equities clients last year. (See WST July 10,2001)

Clients will have access to the Derivatives.com site with a user name and password for real-time pricing, risk analytics and end-of-day analysis. "Users can perform any number of risk analyses while trading intra-day and they can also do end of day Value-at-Risk," says Scott Sherman, global head of sales and principal at Imagine Software. "This brings big-firm technology to hedge funds who previously might not have been able to afford the big-firm technology."

Sherman adds that in general, most of the hedge fund clients such as Goldman's use traditional spreadsheet systems and may not have the resources to implement major trading and risk technology. "Typically the hedge funds wouldn't be able to afford to put in all of the servers and hire an IT department or a data department for this type of thing," he says.

In addition, the Derivatives.com site has a COM application-programming interface for users to export live ticking data into an Excel Spreadsheet for internal use as well. Users can also hook into trading systems and "send the data out at the end of the day back to Goldman Sachs as the prime broker to do the reconciliation as well as the firm administrators that are chosen by the various hedge funds," says Sherman. Derivatives.com also has long/short hedge fund risk-strategy pages and convertible-arbitrage functionality for convertible bond trading.

Extending the Derivatives.com functionality out to clients is also important as investors are seeking more transparency when it comes to risk management at the hedge-fund level. "Users can also calculate Value-at-Risk and send the reports out to their investors," says Sherman. The Deriviatives.com site also provides middle- and back-office functionalities such as corporate actions maintenance, daily events processing including the resetting of swaps and posting of dividends, as well as the calculation of funding costs, borrow costs and transaction fees.