Innovating OTC Derivatives: Cloud Tech & Visualization Insights

DerivSource’s Julia Schieffer talks to new entrants and others about the trends fueling innovation today including use of cloud-based technology, pay as you go pricing models and visualisation tools.

Just having the cutting edge and flash technology is not always enough. The tools must also be able to address a real need of its clients in a cost effective manner given the tight IT budgets.

This is why Derivative Path, a California-based new entrant, aims to address an overlooked segment of the derivatives market – uncleared swaps, where technology dollars are not generally earmarked for despite the clear need for increased automation and expertise to ensure processes are compliant with Dodd-Frank rules.

The California-based solution provider offers a trading platform, execution support and advisory services to financial institutions, including commercial end users who are largely exempt from the CCP clearing mandate but want support for their hedging activities and in meeting compliance requirements under new regulation, explain co-CEO and co-founder Steve Hawk.

To do this Derivative Path offers a trading platform for those lacking the scale or interest in investing in their own execution platforms but want to continue hedging. Also, key post-trade processing functionality, such as the ability to track trades, is supported to ensure users are compliant with new regulation.

The inclusion of regulatory advisory services to support compliance with Dodd-Frank is a central tenant of the Derivative Path offering, explains Hawk.

He said: “Some firms already have a back-to-back hedging programme for their own asset-liability hedging but are behind the eight ball in terms of keeping up with the regulatory changes, and uploading client data to a swaps data repository, for example, which is one element many haven’t thought about yet. We are seeing a lot of traction from clients who recognise they have to do more than they are doing, and relying on [a firm] that knows how this works for others similar institutions will be a great way to get [compliant] quickly rather than hire a lot of people to invest in something that is already available and when the budgets just aren’t there.”

Even with the constraints of Dodd-Frank, the relevance of interest rate swaps in this market hasn’t changed, These hedging products are still valuable for most of the financial institutions and end-users who are using this product to hedge, adds Pradeep Bhatia, also co-CEO and co-founder of Derivative Path. The combination trading/advisory solution aims to help those eager to maintain back-to-back hedging programmes.

Bhatia said: “I think it would be a shame if the institutions that were so comfortable using this product in their day-to-day activity, all of a sudden came to the conclusion that they didn’t want to use these products. So for us, the bigger goal was to continue to be a catalyst that people can use to enable continued use of these products. And yes, there is the extra work of complying with Dodd Frank, and record keeping and retention and reporting and we can solve that through the technology platform, but in time the burden of compliance of law should not move you away from continuing to use a product that is proven to be quite relevant in your business for a number of years…”

Derivative Path, as well as many other service providers and solutions vendors, are also offering more ‘pay as you go’ type pricing models to allow clients to manage the costs along with growth and pay via incremental revenue. ”This allows people to evolve but ensure compliance with regulation as they grow,” notes Hawk.