Derivative instruments, regulation and your cost base

By | 28 November 2018

The past ten years since the GFC have been remarkable in many ways for the derivative markets and the instruments traded.

Among other things, the trend towards greater complexity in the financial markets and their increased regulation has been a dominant force, reshaping the way business is conducted, inflating the cost base and forcing consolidation.

Negative rates, liquidity basis, Stressed VaR, CSAs&clearing platforms, XVA effects, FRTB, initial margins… the common denominator of all these ‘new’ effects and barbarian acronyms has been the need for more complex valuation models and increased computational power. To which, the overwhelming response from sell side banks has been the doubling down on their hardware infrastructure, while adding new systems and services to their already over-complex ‘service-based’, distributed infrastructure and galaxy of internal applications and systems. Despite advances in CPU power, aggressive cost-cutting and efficiency initiatives, the impact on the cost base has been explosive.

As for the buy side, it has become ever more reliant on the services of external providers such as their prime brokers and fund valuators, while heavily relying at desk level on clunky Excel-based solutions for their intra-day, real time risk management.

At CRZ Pricing, we believe all this is not inevitable and we have taken on to prove it: our cross-asset front office tool, developed incorporating the latest innovations in pricing models and advanced computational methods, achieves spectacular performances (in the order of magnitude of 100 times faster than a traditional distributed architecture) with a significantly reduced total cost of ownership. Covering all aspects of front office – database, booking, pricing, real-time risk management, – it is the ideal solution for both sell-side and buy-side firms with high risk management standards and elaborated derivative books.

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