Bear, Stearns & Co. has licensed DerivaTech's DerivaTech FX Risk Management Platform to support its growing Exotic FX Options and Structured Products Business. The platform will be implemented for use in Bear, Stearns' London and New York offices.
"For the past year we've been involved in the exotic foreign-exchange options business and now we're looking to significantly expand that business," says Stuart Abramovitz, managing director responsible for foreign-exchange administration at Bear, Stearns. The DerivaTech platform will be integrated with Bear, Stearns' proprietary front-end FXTrader system, which handles plain vanilla options.
Although he would not name the system, Abramovitz says Bear, Stearns had been using a temporary vendor-supplied solution for exotics until "we identified the appropriate long-term solution." He adds that this implementation aims to consolidate risk management for both exotic and vanilla FX options, as well as to avoid the duplicate keying of spot and forward hedges.
In addition to the front-end FXTrader system, the DerivaTech platform will also be integrated with Bear, Stearns' Swap system, a proprietary back-office system for derivatives transactions and will share a database with the FXTrader system. "One of the reasons we integrated it this way was so that we wouldn't have to replicate or create an interface with our plain vanilla foreign exchange back office," says Abramovitz. "Those trades will continue to flow as they do now and that structure reduced our in-house costs."
"We're most excited about the ability to go beyond the long list of standard product offerings and use Bear, Stearns' internal capabilities in the analysis and quantitative areas," says Abramovitz. Bear, Stearns relies on its FAST group to structure models and create additional products. "DerivaTech then seamlessly adds these and incorporates the products into the risk management reporting," he adds. "It has a dynamic GUI that allows us to not only define our own products with their own parameters for risk management, but also to create data entry capabilities."
Initially the DerivaTech platform will be licensed for about 10 trading and sales users in the London and New York offices. "This system is also very scalable and allows us to add sites and users as the business expands," says Abramovitz. Bear, Stearns is currently in the midst of the implementation and looks to be up and running on the DerivaTech platform sometime in November.