By Karen Spinner

New players continue to swarm into the market for derivatives and risk management systems. Consultants at established firms are jumping to form new, more specialized groups. Established data vendors are building up relationships with new software firms. Software startups are beginning to target specialized markets underserved by the larger vendors. And established international vendors are expanding into new markets overseas.

Meridien: Systems Research From Tower Alumni

Risk management and information technology executives often experience a numbing in their limbs when they're faced with a firm-wide systems initiative. Where do we start? What are the products on the market? Where do we send the RFPs? The key issue is getting a quick snapshot of the hottest available financial technologies-and how they can provide a competitive advantage.

That need has inspired four top analysts from the Newton, Mass.-based Tower Group to break away and form their own firm, christened Meridien Research. "We decided to go off on our own," explains Deborah Williams, the new firm's director of risk management services, "because we wanted to zero-in on a few key markets." These key markets include risk management, electronic delivery (including electronic commerce) and customer management systems.

All four of Meridien's founders are scarred veterans of massive systems implementation projects-both from the perspective of analysts and project managers. Before joining The Tower Group, Williams was head of technology planning for Citibank's Tokyo office. Barbara Smiley served as Tower's director of research and authored reports on credit risk systems, data warehousing and technology patents. She's also helped implement data warehouses at Bank of Boston and Prudential Home Mortgage. Bill Bradway, a founding member of The Tower Group, has specialized in researching data warehousing and core bank processing applications. And Octavio Marenzi has authored papers on electronic delivery systems such as Internet banking and smart card technologies. He also headed up IT planning for the private banking unit of the Union Bank of Switzerland in Zurich.

Between the four of them, Meridien has a wealth of business expertise, which includes considerable experience in European and Asian markets. According to Williams, Meridien's philosophy is to provide global, strategic market research which, in the case of risk management, will not only help customers meet their regulatory requirements but also let them use new technologies to reap a competitive advantage. "Companies with the most effective risk management systems to manage their capital requirements will have the advantage," she says. Because for most institutions risk management is a global phenomenon, "there are more similarities among international banks' risk management needs-no matter where headquarters are located-than there are differences."

In terms of advising clients, Williams says that rather than providing an Answer (such as "you must buy THIS software package"), Meridien will strive to provide clients with the right questions to ask. For example, with risk management systems, she stresses that it is important for managers to find an architecture that will be flexible enough to grow and change. Flexibility is important, not only to avoid premature systems obsolescence, but also to allow firms to incorporate their own proprietary analytics into "prepackaged" software solutions.

As for the age-old build-or-buy conundrum in the risk systems arena, Williams says that the key issue these days is how to blend together seamlessly a smorgasbord of best-of-class systems. "There is enough good software on the market that it doesn't make sense to build a risk system from scratch," she says. "On the other hand, there is no one system on the market today that does it all." Therefore, despite the difficulties inherent in large integration projects, she explains that best-of-breed is probably the best approach to most systems initiatives. "But," she cautions, "although systems integration requires considerable project management skills, we don't advise firms to completely delegate a project to consultants. You can lose ownership that way."

Certainly, Williams believes there is room to grow in the risk systems arena, with a particular demand for risk-management-oriented data models. As the risk management and other technology markets continue to grow, so, she hopes, will Meridien.

Company: Meridien Research
Public/Private: Privately held
Founded: March 3, 1997
Services: Custom market research reports, system selection assistance, project management consulting
Address: 77 Charles St., Needham, MA 02194
Phone: 617-455-6888
Fax: 617-455-6838
Internet: www.meridien-research.com
Contact: Deborah Williams at dwilliams@meridien-research.com

FXpress: Currencies for Corporates

Uoung software development firms are often tempted to leave their original market niche in order to build their businesses faster. In many cases, this strategy backfires, leaving a company with more product lines than it can comfortably support, vast quantities of hard-to-maintain "band aid" code and disgruntled customers. Robert Richardson, one of the founders of Bala Cynwyd, Pa.-based FXpress Corp., explains that his firm has taken great pains to avoid this pitfall. Richardson, a former foreign exchange portfolio manager for Wilmington, Del.-based DuPont, along with cofounder Gary Goldberg, a former technologist for DuPont's treasury department, went into business to fulfill a specific mission: to create a comprehensive, front-through-back-office exposure-management program for corporate foreign exchange managers.

"When we get requests from banks and brokerages for our software, we refer these requests to other, more appropriate vendors because we want to keep our focus on corporates," says Richardson. This emphasis on focused development also led the company to consciously pursue a policy of slow, measured growth. When Richardson and Goldberg first left DuPont, their goal was to expand and further develop a foreign exchange system they had originally created for DuPont's foreign exchange department. One of their first clients, not surprisingly, was DuPont itself, and Richardson and Goldberg spent their first two years in business building the system and working with DuPont as a development partner.

The system that emerged from this ongoing partnership is quite robust and boasts a wealth of functionality that could have only been created by developers with an insider's perspective on foreign exchange risk management in the corporate treasury. For example, users can configure their own exposure categories through a flexible configuration screen that users can easily update as their exposure management needs change. Similarly, the system is capable of handling intercompany transactions and tracking the exposures of subsidiaries through its subsidiary exposure input module. Other attributes of the system that are particularly appealing to the corporate user include the ability to designate hedge contracts according to SFAS 52 guidelines specifying whether hedges can be deferred or must be marked-to-market, bank performance tracking, and sophisticated date functions for calculating forward settlements. FXpress' user interface is designed to be intuitive, and easily usable by non-techies.

Most of FXpress' sales have resulted not from aggressive marketing but from favorable word of mouth. "We did not want to oversell the system, because we didn't want to promise more than we could support," says Richardson. Nevertheless, FXpress has nearly doubled its install base during the past year; currently, FXpress has more than 30 live users.

One byproduct of this fast-growing user community has been a "grassroots" user group, which has already met once independently of FXpress. The group has submitted a prioritized list of requests that is being incorporated into the next version of the FXpress software. Likewise, Richardson explains that FXpress is now poised to accelerate its growth. "We have hired a top-notch programming staff, and we are beginning to adopt a marketing strategy aimed at a broad cross-section of large and mid-sized corporates," he says.

Although FXpress plans to remain a highly specialized boutique shop, its next challenge, it seems, will be to manage a much larger install base and the resulting development demands, which could include adding interest rates and commodities to the existing foreign exchange system.

Company: Fxpress Corp.
Founded: 1993
Public/Private: Privately held
Products: FXpress Exposure Management System
Description: FXpress is a fully integrated foreign exchange management, contract trading, back-office and contract-accounting system. Functionality includes exposure management, trading tools, back office, controls and utilities. The system also comes with both comprehensive on-line and paper documentation.
Hardware requirements include: Microsoft Windows 3.1 or higher, 486 PC or higher, 16 MB memory for a system that does not interface with a live rate service; 24 MB memory for a system that does interface with a live rate feed
Optional interfaces: Microsoft Office (Word for Windows 6.0, Excel 5.0, Power Point 4.0 and Mail), Reuters, Dow Jones Telerate or Knight-Ridder (Bridge), FX-Match contract confirmations
Price: Annual lease option, starting at $34,000 annual lease rate, including up to 3 workstations; one-time license fee of $90,000 plus additional charges for installation, training, maintenance
Contact: Bob Richardson
Address: 111 Presidential Boulevard, Suite 125B, Bala Cynwyd PA, 19004
Phone: 610-617-7988
Fax: 610-617-7983

Xyris: Options for the Masses

Xyris Software Inc., a New York-based boutique software firm founded by three partners in 1991, has always kept a low profile. "Our expertise in financial mathematics and real-time Windows applications is particularly appropriate to fill the needs of traders who want to balance high-speed performance with ease of use," says Maurice McGinley, one of the firm's partners. Some of Xyris' recent projects include building a convertible bond system for Bear Stearns and an ADR trading system for NatWest Capital Markets. The firm has also built custom applications for Bloomberg and Reuters.

After spending five years on trading desks learning what traders need and want from their desktop systems, McGinley and his colleagues realized they could offer something beyond custom applications. "We noticed that there was a gap in the derivatives software market. It's been hard for traders to find a high-performance options-pricing application that was also easy to use. The alternatives are all clumsy, or based on outdated technology," he says. The result was XyrisOption, a desktop Windows application capable of pricing and analyzing exchange-listed equity, commodity, currency and interest rate options around the globe. "If it's traded on an exchange, we price it," McGinley says.

XyrisOption was built with an eye on the competition. "In terms of features, we compete against MicroHedge; in terms of performance, we compete against MarkeTrack." According to McGinley, future development plans include adding risk management and advanced position-keeping to the product, to make it even more appealing to large brokerages and clearinghouses.

How does a small shop orchestrate the production, distribution and support of what is essentially a low-price, "mass marketed" product? According to McGinley, they've done it by developing a relationship with Reuters. "We provide the market expertise and real-time technology, and Reuters looks after the marketing, sales and 24-hour customer support." There are benefits for XyrisOption customers as well. "Reuters has priced our product aggressively," says McGinley. In the Americas, customers can buy the software from Reuters. Elsewhere, XyrisOption is available direct from Xyris.

The product has found its way into the hands of traders from Toronto to Buenos Aires, Chicago to London. The firm is also involved in discussions with a number of exchanges that may soon use XyrisOption as a pricing tool on their trading floors. A free trial version of the product is available at Xyris' web site. (See left.) This module comes complete with on-line documentation. Given Xyris' development relationships with Microsoft, an ActiveX web-compatible version of XyrisOption is not far-fetched in the least.

Company: Xyris
Public/Private: Privately held.
Founded: 1991
Product: XyrisOption
Description: Desktop module for pricing and analyzing exchange-listed options. Compatible with Windows 3.1 and higher and Windows NT.
Data feeds: XyrisOption accepts feeds from any Reuters Windows workstation, any machine linked to the Triarch Trading Room, Quotron and any other SSL-formatted data feed.
Pricing: Available through Reuters, and depends on number of users
Address: 584 Broadway, Suite 1210, New York NY 10012
Contact: Maurice McGinley
Phone: 212-925-4388
Fax: 212-925-4929
Email: mcginley@xyris.com
Web site: www.xyris.com

ITS Runs for the U.S. market

Vendors take note: the market for front- and middle-office interest rate systems may be due for another price alignment. U.K.-based ITS, which has been marketing its Axiom system in Europe for several years, is moving into the U.S. market.

Pricing for the Axiom system starts at £35,000 a year-a far cry below most of its competition. "Sometimes we run into problems because Axiom is so reasonably priced," explains vice president Andrew Russell. "Consulting firms, which often bill a great deal for their services, are often reluctant to recommend a system that actually costs less than the original consulting services."

What do clients get for the money? In the front office, Axiom supports most types of interest rate derivatives, including FRAs, swaps, caps, floors, collars, asset swaps, currency swaps and so on. Likewise, a module that will let users construct their own exotic interest rate derivatives is currently under development. Front-office reporting includes real-time mark-to-market, P&L, as well as the ability to "slice and dice" a portfolio according to, say, counterparty, trader, book and so on. Risk management reporting includes sensitivity analysis, BIS capital adequacy and credit risk; the system can also recommend hedges for single trades, books or even portfolios.

The system typically resides on a UNIX server, while client machines can run on UNIX, NT, OS/2 and so on. Although Sybase is the industry standard in the U.S. financial markets, Axiom runs on the Oracle database. Russell explains that ITS chose Oracle because of its user interface and superior customer support. Users can also use SQL to access the database and run their own custom reports as well as port data into Microsoft Access, Excel and most popular desktop applications. Multiple levels of server and database security as well as an audit facility provide Axiom with enough controls to keep regulators happy. "U.K. building societies, which must comply with very stringent regulatory controls, particularly like Axiom because of its extensive security and audit trail," says Russell.

Currently, Axiom has clients as far afield as South Africa and Australia in addition to a strong customer base throughout Europe. According to Russell, ITS offers remote support and diagnostics via ISDN lines, and, he explains, the firm is ready, willing and able to begin supporting U.S. clients.

Annual costs rise according to the number of user licenses purchased. Clients are not charged by how many user IDs there are in the system, but according to how many users can be logged on at the same time. A company with two Axiom user licenses could have a hundred valid user IDs, a pricing plan that Russell says ensures that customers are not overcharged for infrequent systems users.

Vendor: ITS
Founded: 1990
Public/Private: Privately held
Product: Axiom
Description: Axiom is a front- and middle-office system for interest rate derivatives; reporting includes real-time mark-to-market, P&L, selection of risk reports
Hardware requirements: UNIX server
Cost: Starts at £35,000 per year
Clients include: Commerzbank, Royal Bank of Scotland
Contact: Andrew Russell
Email: andrewr@its-axiom.com
Phone: 011-44-171-417-0125
Fax: 011-44-171-417-0041
Address: 40 Clifton St., London EC2A 4DX, U.K.