EDM vendor GoldenSource has taken the plunge and joined the derivatives data management vendor community with a new offering aimed at helping financial institutions value portfolios and manage risk for derivatives products. Neil Edelstein, senior director of product solutions at the vendor, explains that the launch of GoldenSource for Derivatives was based on both a client and market driven decision.
The vendor took the decision to develop the solution in the derivatives space in particular due to requests from clients for increased instrument level transparency. “Many GoldenSource clients were having difficulty tracking derivatives because the master security files couldn’t handle the complexity of these products. In developing our solution, it was important to define and store all relevant attributes; the result is increased instrument transparency and extended comprehensiveness of the master security record,” says Edelstein.
The launch also pre-empts the planned increase in regulation of the derivatives sector by regulators across the globe. As Larry Tabb, founder and CEO of consultancy firm Tabb Group, notes, there is increasing pressure on the industry to provide auditable transparency around derivatives and decrease the operational risk inherent with these instruments. “This increased oversight directly translates to an increasing need for industry-led data repository solutions,” says Tabb.
To this end, the solution provides a preconfigured solution for risk management with a 360 degree view of instrument, issuer and counterparty exposure and includes the provision of a local credit default swap (CDS) warehouse capability. Mike Meriton, president and CEO of GoldenSource, explains: “With a 360 degree view of activity, a firm can increase their transparency not just at a simple counterparty level but at a total corporate hierarchy level.”
GoldenSource for Derivatives organises, archives, stores and categorises all attributes of a range of exchange traded and OTC derivatives, including any underlying securities’ characteristics. The product also aims to provide flexible integration with document management, trading and risk systems, with a view to enabling firms to build a repository of all derivatives related data.
According to Edelstein, this means that financial institutions will have a better understanding of securities and be able to create a central repository as a basis of comprehensive instrument transparency to feed into their downstream risk systems. The 360 degree view of derivative products better positions a firm to be able to react quickly and effectively to compliance and regulatory requirements, he continues.
Edelstein reckons the solution also fits in well with the current offering from the EDM vendor: “The derivatives product fits directly within the parameters of GoldenSource’s standard EDM product. The data warehouse functionality for derivatives is an extension of the coverage our product already provides for multiple asset classes. The difference is that there are a variety of attributes and these instruments introduce a counterparty factor that isn’t in the standard product.”
The solution was developed in consultation with the vendor’s client base, says Edelstein. “GoldenSource surveyed clients and held discussions at advisory group meetings to cultivate ideas and feedback. A derivatives expert with many years of trading desk experience was retained to guide development of the solution in line with the unique characteristics and attributes of the instruments,” he continues.
According to Edelstein, the development process was fairly simple and there weren’t many challenges along the way. “One challenge was ensuring complete asset attribute capabilities, which we were able to achieve with a combination of client input and internal expertise,” he elaborates.
The vendor also conducted a survey of its clients, which Edelstein says revealed increased fears of exposure and a flight towards managing risk. “The ability to understand your instruments and the underlying attributes is becoming crucial, so we’re seeing an expanding market for this solution,” he adds.
Meriton reckons the solution is sufficiently different from the other offerings out there: “The complexity of derivatives instruments make it difficult to understand quickly how changes in underlying data, such as a counterparty credit rating, can impact values across portfolios unless all data is linked. GoldenSource is unique in its ability to handle the diverse nature of derivatives data, since we can source, validate and distribute all terms and conditions data, client and counterparty details, as well as transaction related data throughout the lifecycle of a derivatives contract.”
Edelstein, unsurprisingly, agrees: “Any related offerings typically focus on the settlement of derivatives. In contrast, GoldenSource’s product is a comprehensive data attribute foundation for risk and portfolio management systems. There are no direct competitors in the current product landscape and, in fact, this offering opens up several interesting partnership opportunities.”
He also believes that despite the depressed market, solutions in this space will continue to garner interest. “We’re seeing that general projects are more closely monitored and being broken down into phases. We’re also seeing that projects and products in the data management space are moving well because of increased focus on the foundational importance of accurate and comprehensive data for risk and portfolio management,” he says.
It will be interesting to see the partnerships that spring up following this launch and how it fares against established derivatives data solutions vendor offerings over the coming months.