Fincad and SimCorp have entered into an agreement to integrate Fincad’s derivatives pricing software into SimCorp’s investment management enterprise solution, SimCorp Dimension. The global agreement extends SimCorp Dimension’s integrated pricing mechanism to encompass a wider range of derivatives than previously available, including credit derivatives and instruments implemented within the system’s new XpressInstruments framework.
Søren Pedersen, vice president for partner development at SimCorp, explains: “SimCorp was in a position where we needed theoretical pricing capabilities for credit derivatives and our complex instruments module XpressInstruments. A few years back we would have developed our own pricing capabilities but we decided to go to the market and partner with somebody in this space if possible.”
SimCorp set up a structured due diligence process and looked at leading edge functionality vendors, says Pedersen. This was with the aim of gaining an insight into the vendors’ development plans, staying power as a company, structure of management and processes. “We did quite a lot of investigation into the potential companies and the most crucial thing for us was future capabilities for complex instruments.”
The firm also needed to be able to ensure that XpressInstruments could be mapped into the pricing models. “There are a number of vendors that offer pricing capabilities for credit derivatives but only a few with capabilities for mapping to XpressInstruments and this reduced the list considerably,” says Pedersen. “The shortlist at the end was three vendors and we chose Fincad to move ahead with. We have been speaking to them seriously about this for the last eight months and this has involved workshops where we have discussed primarily how to make the XpressInstruments interface work between the two solutions.”
Complex instruments will be valued directly from within SimCorp Dimension using Fincad’s advanced theoretical pricing solutions. The agreement is aimed at allowing customers to eliminate data manipulation tasks required to price such positions and thus reduce operational risk while simultaneously improving efficiency.
Bill Stewart, vice president of sales at Fincad, comments: “As derivatives are increasingly traded on an individual basis, a precise valuation of each contract is crucial in providing an accurate portfolio valuation.”
Pedersen says:“ As far as credit derivatives are concerned, those pricing capabilities will be in place on 1 February next year. For XpressInstruments, those capabilities will be in place by 1 August next year. We are now working on the detailed specifications for the interface with Fincad and LexiFi, who supplied the framework for XpressInstruments. The XpressInstruments interface will be delivered to SimCorp by the first quarter of 2009.”
He continues: “The overall benefit to us is that we will be able to maintain SimCorp Dimension’s position as a one stop shop for asset managers. No matter what type of asset class, SimCorp Dimension will be able to handle all the different aspects of that asset class, including pricing. Without this, we would be in a situation where customers would have to do pricing outside of SimCorp Dimension, meaning rekeying data and related operational risk. It is mandatory for us to have pricing capabilities for these instruments within SimCorp Dimension.”
As for its impact on Fincad, Pedersen says: “It will add to Fincad’s client base but the clients will remain SimCorp clients. There will be up to 160 additional clients using Fincad’s software.”