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NumeriX and R2 Financial Technologies Partner for Cash and Synthetic Credit Instrument Valuations

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NumeriX, a provider of analytics for the derivative and structured products markets, and R2 Financial Technologies, a provider of solutions for pricing and risk profiling structured credit strategies, have teamed up to develop a solution aimed at enabling the pricing and valuation of cash and synthetic credit instruments. According to both vendors, the NxR2 solution has pricing analytics powered by NumeriX 7 and covers the complete spectrum of these products.

It is aimed at providing clients with the level of granularity and transparency needed in the current financial climate, say the vendors. Dan Rosen, CEO at R2, explains: “The credit crisis has highlighted the need for transparency on the contents and structure of these complex securities, as well as for effective valuation and risk methodologies. Our vision is to provide packaged advanced analytics with detailed credit data, scenario capabilities, productivity and reporting tools, in order to perform reliable valuations, and understand the key underlying risks and concentrations in structured credit portfolios and strategies. This will allow business users to make better investment decisions and discriminate between securities, as well as manage their risk, and satisfy regulatory requirements.” Steven O’Hanlon, president and chief operating officer at NumeriX, adds: “Institutions will continue to invest in flexible software systems for the valuation derivatives and other sophisticated financial products, but there are several key issues that solutions need to address, for example from the front office – the development of standards between the desks which support different asset classes, model validation for new products, and trade capture and then through out the institution, including connectivity between data and middle and back office resources.” O’Hanlon says that the vendors developed the service in recognition of the lack of readily available tools for traders to accurately price structured credit products on the market. “As institutions look to build the necessary connectivity in their organisation and look for partners and vendors to help build these solutions, managers need to be aware that they should clearly understand their business requirements, as not all solutions can support the complexity of the instruments in the market and connect effectively and efficiency into the enterprise-wide systems,” he adds. NxR2 is a Windows-based application, which the vendors claim allows investors to gain a greater understanding of their portfolios. It provides connectivity to three data providers that specialise in the credit markets: Bloomberg, Markit and Intex. NumeriX has therefore integrated Bloomberg and Markit’s pricing data with Intex’s deal libraries and cash flow generation functionality. According to the vendors, its open interface and design also allow for the integration of other generic cash flow libraries and credit data. One of the main features of the solution is the integrated valuation of cash and synthetic collateralised debt obligations (CDOs) and scenario generation. It also provides the ability to set assumptions at the desired level of granularity, says NumeriX. The solution allows for immediate access to trade ready information with complete instrument coverage including ABSs/RMBS/CMBS, cash CDOs (CLO, CBO, ABS CDO), synthetic CDOs and CDS indices, bespoke CDOs, as well as single name credit products, including CDSs, loans and bonds, says the vendor. According to the vendors, NxR2 provides real-time pricing, cash flow and exposure reports, as well as sensitivity analytics. It also provides a workflow and productivity tool to price and profile investment strategies, for data management purposes. O’Hanlon concludes: “Valuation systems have changed with their support for complex financial instruments. Modern architectures, such as NumeriX analytics, are inherently ‘future proof’, in that they support flexibility to describe financial instruments with an ‘object oriented approach’ – this enables end users to handle new products without requiring an update of the software. Additionally, the pricing mathematics is separated from the instrument allowing for even greater adaptability. New innovations include multi-threading to take advantage of multi-core CPUs and grid networks as well as 64-bit architectures.”

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