SmartCo has upgraded its centralised enterprise data management (EDM) solution, Smart Financial Data Hub (SFDH), to include functions for modelling and managing the fundamentals of credit derivative products, special purpose vehicles and complex underlying instruments. The vendor says the upgrade is a reaction to the current financial climate and the requirements to deal with the growing complexity of credit- derivative products.
Patrick Archer, SmartCo’s UK and US head of sales, explains: “We are constantly improving SFDH to address new customers’ demands and to cope with financial market innovations. Functional enhancements are almost always driven by clients’ and prospects’ needs that are involved in the product specifications.”
The vendor has increased the coverage of credit derivatives products in SFDH’s instrument repository, including CDS single name, CDS basket and CDOs. It also now supports inter-entity links of any type, in order to facilitate analysis and risk measurement for these contracts. “In the particular case of credit derivatives, we received the requirements from one of our existing customers, a big French asset manager, explains Archer. “This client was looking to extend the use of SFDH to the structure finance department for CDO management purposes. Volatility curves were requested by an investment bank customer, who needed to store historical volatility surfaces to comply with risk management internal rules.”
Navigation has been improved for the CDS basket in particular, says the vendor, to provide a view of the risk related to all of the references. SFDH is aimed at providing quick access to the prices, ratings, analyses and all related data. Similarly, SFDH’s index repository can manage CDS indices, together with their composition, says the vendor. The solution also integrates data, prices and spreads from standard connectors, such as Markit, CMA and Bloomberg DL.
SFDH’s Instrument repository has now been enhanced with models to support the packaging of operations, taking into account the special characteristics and the view of each interested business player, claims the vendor. So, for CDOs, the originator of the transaction, the structurer, the manager of the asset basket, the investors and the trustee all have the level of detail appropriate to the specifics of their business.
Product modelling in the application takes into account key mechanisms, such as the ability to group and detail the underlying assets (acquired or synthetic), decoupling the credit pool risk from that of the originator of the operation and including management of SPVs and the structure of liabilities, with their breakdown into tranches.
“These new functionalities were implemented in less than three months, says Archer. “The main challenge for credit derivatives, for instance, was related to the modelisation of such complex structure (components, asset pool and third parties) in an efficient way that allows users to access quickly and efficiently to the information and measure risk exposure. We managed to overcome this challenge thanks to the flexibility of SFDH that allows creating and modifying the data model through the user interface and without any development.”
SmartCo contends that the product’s various repositories, including SFDH third party and SFDH transaction repositories, can interoperate and this allows all characteristics to be looked at in detail. This includes debt portfolio management, credit enhancement, assets and liabilities, rating information, and all links with the various third parties involved in the management and the administration.
“Apart of being able to trade these new instruments and generate more revenue, our customers can now measure more efficiently their risk and comply better with regulatory constraints. It reduces also the risk of data administration errors while improving the controls and overall quality,” says Archer.
The service covering commodities has also been enhanced, taking into account the requirement for diversification in this area. Listed and OTC contracts are now supported in the application for a variety of underlying assets, including oil, electricity, carbon emissions, precious metals, agricultural and others.
The modelling includes customised processing and calculation rules for those various assets and prices can be obtained from standard suppliers such as Reuters Datascope and Platts, says the vendor. Moreover, the SFDH instrument repository includes volatility surfaces (swaption, forex and cap/floor) and their profiles can be analysed using the platform’s analysis tools. Volatility points are fed via connectors to specialised data providers, including SuperDerivatives, Panorama or internal sources. Volatility surfaces have been added to the curves management module, which already covers yield, forwards, spreads and commodities curves.
Clients were involved from the early stages and collaborated during all phases of the upgrade, explains Archer. This included the specification, prototyping, implementation, testing and validation. “For the commodity enhancements, we also partnered with Thomson Reuters who helped us to validate the data model. A joint event was organised to present this new feature to our common customers,” he adds.
“According to our customers and the market feedback received, SFDH is the enterprise data management solution that provides the most evolved data model for financial institutions,” he claims. “The out of the box preconfigured dynamic data model coupled with an unrivalled flexibility to address new demands and cope with market evolutions has been often quoted by our client as the key point that differentiates SmartCo from other actors in the market.”