Joe Parsons: What’s next for ICAP’s PTRI business and how will you work with Abide and partners such as OpenGamma going forwards?
Jenny Knott: There are three structural trends which drive growth for our post-trade risk and information (PTRI) business and create opportunity both for our clients and our stakeholders for the future: regulation which has increased reporting and capital requirements and the need for electronification and standardisation.
The benefit of owning a portfolio of businesses in this space is that we have created an ecosystem of services which interoperate across the transaction lifecycle. So for instance, following our recent further investment in OpenGamma, we will work with them in partnership with Traiana and our data business IIS to provide a new solution, set to launch in the coming months, which meets the needs of the fundamental review of the trading book (FRTB).
FRTB has implemented a new methodology for calculating market risk capital, and the challenge with that is not only is this a new methodology but it is applicable to many more financial institutions that didn't know they were running a market risk book. Our combined new solution will allow firms to calculate their capital on a standardised basis, give them the trade data that they need to validate their internal models, and give them a portfolio of tools to achieve a more capital efficient outcome.
For OpenGamma, the advantage in partnering with us is a huge client base and new user cases. While for our clients, the more integrated we are from a technology and data perspective, the simpler it is for them to reach all of those services. This is also why we recently acquired Abide Financial, so that in partnership with Traiana and IIS, we can launch a joint MiFID II product and provide a holistic suite of regulatory reporting tools to our clients. They on-board once to Traiana, which provides the connectivity for all clients’ MiFID II requirements with Abide providing seamlessly the MiFID II enrichment, validation and determination.
We’re currently working towards a single master services agreement, where our clients that work with a business within the PTRI ecosystem will be able to on-board onto Traiana, and then all of their regulatory reporting for MiFID II, Dodd Frank or EMIR, will be performed automatically for them. Working in an ecosystem environment, the opportunity to provide our clients with a unique combination of services is huge.
JP: Is the aim to become a data warehouse with these partnerships?
JK: No, because we don't want to own our clients data, we partner with them to help them structure their data in the cloud as opposed to installed software, which is now quite old technology. We believe Amazon, for example, have the most phenomenal capabilities with cloud technology, and are the only provider that has the ability to segregate their cloud by legal jurisdiction. Amazon has become just as fundamental to market structure as a CCP. Even regulators hold their data in the cloud now. Some firms are a bit sensitive about moving into the cloud, but the reality is the cloud architecture is more cyber robust than most internal data warehouse.
JP: Do you see the future of FinTech being centred in Silicon Valley?
JK: There is no doubt about it, clever technologies such as artificial intelligence, computer based learning and cloud computing have come out of Silicon Valley. However, the application of such technologies in the world of financial services, which have traditionally been slower to adopt these technologies, is now happening at rapid pace all over the world.
Through Euclid, ICAP’s investment arm focused on emerging fintech companies, we’re seeing interesting new technologies and services come out of Shoreditch, Bristol, Tel Aviv, Stockholm and New York; all fintech hubs in their own right, proving that FinTech is globally diverse.
JP: How are the buy-side stepping up with their investment in derivatives technology?
JK: In our PTRI business we are about to launch a post-trade working group to help them access a more seamless portfolio of services. Although many have their own in-house solutions, they still need to interface with all the different aspects of market infrastructure such as OMS, settlement, clearing etc. Generally their middle and back office has become more complicated than they would have liked because every single instrument and asset needs to be managed, particularly in the derivatives space.
The buy-side have to interoperate with so many different service providers, be those vendors or other market participants. The buy-side are becoming almost as complicated as banks, and they don't want to make the same mistake by becoming too end-to-end self-sufficient, so they are looking at innovative ways to solve this complexity.
This is why we initially invested in and later acquired ENSO Financial Analytics in April this year. A data analytics platform for hedge funds and prime brokers, they provide measurable operational insight on counterparty credit risk, collateral management, and portfolio financing and treasury functions to help clients finance alpha more effectively. By bringing them into the ICAP PTRI ecosystem we are able to leverage ENSO’s connectivity and expertise in the buy-side space. An example of this is the recent connection with our EBS Treasury business, to provide cash and collateral movement workflows to ENSO clients for the first time.