Market Data Providers Embrace OTC

Multiple data sources spur real-time risk monitoring.



A new generation of market data providers in OTC and complex derivatives is emerging, spurring development initiatives for real-time applications.



“We are seeing larger hedge funds that trade in derivatives plugging in new sources of information, such as third-party models for valuations, or new sources of market data for new instruments,” Alexei Miller, executive vice president of Data Art, told Markets Media. “Where in the past they got all of their data from Bloomberg or Reuters, it’s now likely to come from multiple sources. We are experiencing a spike in alternative data sources for credit derivatives, emerging markets, and ETFs, among others.”



Technology spend will continue to be influenced by regulations in credit risk and capital management, presenting the range of challenges exclusive to the financial services industry.



“Real-time credit limits and real-time exposure monitoring are being driven by regulations,” Miller said. “Development of real-time risk monitoring on a sophisticated derivatives portfolio across multiple desks in a global bank is a nontrivial task because of the massive amounts of data, nonlinear calculations and big spikes in computer capacity that needs to be supported.”



A typical use case is an asset management firm that requires system development in order to enter a new line of business.



“A multistrategy investment firm decides to open a new trading desk in mortgage-backed securities or credit derivatives, for example, and they need to develop or deploy a portfolio management system for that trading desk and integrate it their enterprise reporting and accounting systems,” said Miller. “We will provide custom development of the system and then integrate it with downstream and upstream systems.”



Data Art, a software outsourcing provider serving hedge funds and investment managers, has experienced robust growth as buy side firms seek to reach the next level in new apps, ranging from advanced portfolio risk management to scenario modeling, and order management.



“While we have created solutions to assist large investment firms, many of our new clients are financial technology startups, working on innovation solutions in electronic trading and OTC derivatives,” Miller said.



In 2011, Data Art completed projects for front office and electronic trading, enabling some of the largest investment banks to run live on algorithmic trading and transaction processing systems, processing well over 100 million orders each day, according to Miller.