Valuations solution vendor SuperDerivatives has bagged its second client of the year in the form of custodian and fund administrator Fortis Prime Fund Solutions, which has opted for the vendor’s revaluation service to source pricing for illiquid and complex derivatives. According to Amod Kumar, global head of strategy, business improvement and control at Fortis, the bank selected SuperDerivatives because of its ability to cope with illiquid and esoteric assets, an increasingly important corner of the market with regards to providing data transparency.
The bank is keen to demonstrate the independence of its pricing to the fund administration market and regulators, against a background of intense scrutiny from both corners. It selected SuperDerivatives’ solution because of its ability to price a range of complex assets. “The breadth and depth of the assets and structures it supports will ultimately benefit our hedge fund clients and their investors,” says Kumar. “In our testing of SD-Reval we were impressed with the consistency that it showed in its ability to price illiquid and esoteric assets.”
SuperDerivatives focuses on these hard to price assets and has managed to carve out a niche for itself in the space, although it is facing increasing competition from the larger providers out there, all of which are extending further into the area of complex asset class pricing.
The vendor signed a deal with Hungarian commercial bank OTP Bank in January, under which it will provide the bank with revaluations for its vanilla and complex FX and interest rates derivatives.
SuperDerivatives also released a report in January that indicates that it expects that the use of OTC derivatives will increase over the course of this year. The figures follow a report from the Bank for International Settlements (BIS) into usage of OTC derivatives trading figures, which revealed that the notional amount of OTC derivatives trades outstanding bounced back to reach US$605 trillion by the end of June. David Gershon, CEO of the vendor, explains: “I am convinced that the direction financial markets took in the 2000s, excluding credit derivatives, will in time return and derivatives will continue to evolve and volumes will soar as they offer a customisable and practical way to manage risk.”
Gershon indicates that this, in turn, will drive more demand for valuations services at the more complex end of the spectrum. “Used and valued effectively, these instruments remain useful insurance policies, which allow firms to manage the fundamental risk in currency and commodities fluctuations, interest rates moves, supporting trade, investment and economic output. There remains a key role for independent, effective pricing across the whole derivatives universe to set the benchmark price for valuations for derivatives,” he continues.
He reckons the introduction of more central counterparties (CCPs) in the OTC derivatives space will also drive volumes to increase, as the market becomes more confident in the stability of these instruments.