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Headline: E-finance - Treasure chest for capital markets
Source: Euromoney
Date: May 2000
Author: Boris Antl
Most financial institutions see the internet as the future for distribution and trading of financial products, mostly for retail. But web-based products are being developed to provide a competitive advantage in far more complex businesses. The entire landscape of the wholesale financial services industry is set to change as a result. Boris Antl reports
Corporate treasurers and investment managers are showing an increasing interest in using the internet to improve efficiency and to access information and sophisticated risk evaluation and management tools. There are substantial challenges to market participants in this new world. But companies that duck the e-finance challenge risk being left behind.
Euromoney reviews some of the latest online services provided by leading financial institutions - and by new competitors - to corporate treasurers and risk managers. The survey is not comprehensive: the financial institutions and other firms have been selected to illustrate the types and scope of web-based products and services on offer, now or soon. Nor does it cover all the electronic products of the participating institutions, only those relevant to treasury and risk management operations.
This gives us a snapshot of what is available for treasurers and risk managers over the internet. What's clear is that whether you wish to issue a Eurobond or commercial paper, manage your firm's currency or interest-rate exposures, float equity, obtain top-notch research on any subject, arbitrage among the financial markets, invest surplus cash, trade on the various derivatives exchanges, or shop a deal in a multi-dealer site, you will be able to do so on the internet with the offerings of the eight institutions covered below.
A diversity of approaches
All online financial service providers share the aim of increasing profit by achieving efficiency and/or to extend their reach to more clients. But that is where the similarities end. The products and services differ in most other respects. Some firms provide just a few stand-alone online products and services, others provide more integrated sites and wider coverage. This partly reflects each institution's business focus, its core strengths and market competencies, and partly its degree of familiarity with the internet technologies.
Areas covered include risk management and advisory, trading/execution, brokerage, asset management, equities and equity issuance, debt issuance and syndication, cash management, clearing and settlement, custody, advisory and reference in general, and wireless-delivered mobile information. Some are aimed at corporate treasurers, some at fund managers, others at traders. Often, the same products can serve both the buy and sell sides.
Many banks are feverishly developing internet-based capabilities, but there are significant differences between the corporate treasurers and risk managers at which they are aimed. Some companies are adopting the new technologies as fast as they become available; others are far more cautious and seem to be lagging behind in the implementation of e-commerce strategies.
Microsoft is keen to embrace the new technology. Its treasury is wired, and large amounts of financial information can be retrieved from its corporate intranet or the web. George Zinn, director of Microsoft's corporate finance group, says: "In the private suite on our website, I can click on a link that will connect me to any one of our counterparty's secure websites, which offer research and analysis. Their functionality is impressive; some of those sites are capable of marking Microsoft's positions to market. I manage the $20 billion strategic equity portfolio. I try to stay on top of the markets. As a result, I have subscriptions to several online services like convertbond.com, thestreet.com, and most important, moneycentral.com. I also manage the financial risks of the treasury and leverage, a web-based tool from Deutsche/BT called Raroc."
Not everyone has moved so fast. However, banks should not confuse a more measured approach with lack of interest. Some corporate treasurers are inclined to wait until the e-finance providers have thinned out.
Hans Pohlschroeder, vice-president and assistant treasurer at Colgate-Palmolive in New York, is keenly interested in the new technologies. "We are currently not using any of the online treasury services provided by the financial institutions. We are trying to listen at this moment and trying to assess who are going to be the winners and in which markets, and whom we would like to use for issuing securities, buying and selling securities, or other services. We are aware that most financial institutions are very busy developing something and are in the process of formulating a strategy."
The company is working with a big financial institution to develop and implement a proprietary global online system that is expected to generate considerable economies for its worldwide treasury operations.
Fund managers are quickly becoming active on the internet, in particular in research, investment opportunities, and trading, execution and arbitrage systems. That, perhaps, reflects the relative simplicity of using online trading systems.
However, few corporations yet seem to be using the internet actively in their treasury operations, often limiting themselves to retrieval of quotes, news, historical data or research. Several indicated their relatively low level of use. But the head of e-commerce at one leading broker says: "We see them [the corporate treasurers] popping in an out of our site all day long, looking for funding costs."
Getting automated information directly into a treasury management system over a website can be an enormous productivity boost. In corporate treasuries and the bank departments that service them, there is an enormous amount of fax and phone traffic relating to the mechanics of the business, rather than to any value-added advice. The new technology can wipe out that low-value interaction. This is music to the ears of the corporate treasurers and the larger financial services institutions, many of which are becoming high-tech applications service providers (ASPs). Not only is the internet improving efficiency, it is extending the potential audience for sophisticated treasury services.
Says Philippe Buhannic, managing director of CSFB's fixed-income e-commerce activities: "Through internet delivery, we are able to provide risk management tools, traditionally reserved for only the most sophisticated financial institutions, to all types of clients while sparing them the lengthy installation process."
Even though sophisticated risk management tools are easy to access, not all corporations will use them. But the internet allows such customers to use as much as they think they need. Corporate and institutional customers, instead of buying or developing their own risk management systems at huge expense, can now download those provided by banks. Obviously the banks, increasingly competing with software vendors and consultants, expect a pay-back in underlying business volume.
The benefits of this evolution for end-users are likely to be enormous. Michelle McCarthy, managing director, sales and marketing, Raroc 2020 atDeutsche Bank in Seattle, Washington, says: "We have noticed that ASP providers can be used to 'right-size' an application that would otherwise be too large or too costly for a company. Large-risk software packages make a lot of sense for banks, who need to track daily risk figures for regulatory purposes and have large risk management groups, but they don't make much sense for the more occasional user of risk information. Investors and corporations typically fall into this less-frequent user category. Using an ASP gives them access to the most sophisticated software, and even the operational staff behind it, at a fraction of the cost of a built-in client-server application."
Some of the online systems discussed are up and running, others are being developed. Most financial services institutions are developing new products or adding functionality, and content to existing products. However, some did not appear to know themselves well enough to find and provide the information sought. Other firms were excessively secretive, referring to their e-commerce activities as confidential and proprietary.
We were not able to evaluate the products of these institutions, as the market rumours and gossip were ambiguous. "There is a lot of vapour out there and you have to see it, touch it and test it to believe it," says the treasurer of one big multinational. Another e-commerce financier said: "They could be secretive because their systems are pathetic or because they really are working on something where they feel even a peek from the outside would result in a leak they don't want to talk about."
Euromoney contacted 12 leading financial institutions and four online e-commerce providers and asked them: "What online products and services does your firm provide to corporate treasurers and other risk managers, in particular in the area of capital markets, derivatives and risk management?" Seven financial institutions and one online e-commerce provider responded fully.
Issues to consider
How do you find the product/service you want and need? How do you select the right providers? Which service is the most suitable for your operations? Are your security issues properly addressed? These are important questions and, relationship considerations apart, should be seriously considered by treasurers and risk managers.
The concerns most frequently expressed by users and advisers include the convenience of the service, its user-friendliness, and security. These factors, when taken with the functionality sought, are likely to make a difference between success and failure in achieving efficiency and productivity gains on the internet.
Convenience and commingled sites
Banks and other internet providers deliver online information to their customers via three different channels: single institution open sites (AIB's FXCenter); single institution proprietary sites (Morgan Stanley' ClientLink); and multi-institutional portals (TradeWeb and MarketAxess)
The key distinction between trading/execution sites is between single-counterparty trading systems operated by banks and others that want their customers to deal with them exclusively; multi-party trading systems where several banks provide quotes; and auction systems where sellers make offers and potential buyers bid for it.
Ultimately developments are likely to be dictated by end-users. Most financial institutions realize that, and some have taken steps in that direction, producing the commingled site. Many in the industry believe commingled multi-party sites are the future.
Michael Packer of Merrill Lynch says: "A number of commingled sites are driven by clients seeking the greater convenience of doing business with multiple participants without having to remember multiple passwords and multiple navigation schemes. The subtlety comes in understanding what functions will occur in the commingled area and what functions should remain in the proprietary spaces.
"The other reason for commingled sites is that in some product areas or functions there is a need for faster dealing speed and more transparent price discovery. Instead of making five phone calls to get bids on a transaction, you can simply visit the commingled site and complete the trade directly."
He concludes: "These commingled capabilities will coexist with single-dealer capabilities for many client groups."
Most market participants echo this, although there are subtle differences in viewpoint. "Technology can facilitate providing fixed income institutional clients with the access they want to liquidity pools - especially in commoditized products - and to commingled research and headlines. For this reason dealers concerned about clients have emphasized multi-dealer portals in their e-commerce strategy," says Ben Wolkowitz, managing director of Morgan Stanley Dean Witter.
Christiane Mandell, managing director, head of global foreign exchange sales and research of Bank of America, adds: "Technology trends are clearly moving away from proprietary or closed systems to open, standards-based systems. We strongly support such efforts, since we see it as a way to better serve our customers."
Some market participants view single-institution sites in certain applications/areas as passé. Larry Tabb, director of securities & investments practice at Tower Group financial services consulting firm, says: "While we anticipate large amounts of spending on these [single-institution] sites, we don't believe that these sites will provide their institutional clients with the most convenient method of obtaining information or trading.
"While these sites are useful and we don't see firms being able to escape their development, we believe that institutional firms do not want to visit multiple brokers' websites to obtain information or trade. In the long run the so-called community sites, which combine content and transactional capabilities from multiple broker/dealers, will be the successful business models. Through these commingled sites institutional firms can obtain competitive prices, obtain market data, and research without clicking on multiple brokers' sites."
The interface challenge
The other challenge facing product developers is to design systems that are intuitive and easy to use. Too many require a series of cumbersome keystrokes to execute a trade, and overwhelm the user with unorganized information displayed on multiple windows. Learning new designs, interface conventions and keystroke sequences increases inefficiencies and is often impracticable for end-users. How practicable or feasible is it for a treasurer to use a dozen applications, each on a different site, with a different password, and a different interface?
"As the amount of content grows on institutional brokerage sites, ergonomics, or the development of an effective internet navigation mechanism will become increasingly important and difficult," says Tower Group's Larry Tabb.
Retail information tends to be limited. Individual investors are looking for equity and mutual fund quotes, research, news, trading capability, and the ability to view statements, confirms, and other account-oriented information. By contrast, says Tabb: "As firms develop institutionally oriented content they find that the level of information that is needed to deliver expands drastically from mortgage pool information to the value of very specific and arcane products, to full operational support. The ability to both integrate this data and provide it in a flexible, consistent, and easy to navigate manner is a tremendous challenge that again can only be solved with a large amount of ingenuity and money."
Most treasurers and risk managers seem to be looking for a suite of products and services that are well packaged, tailored to their needs, easy to use and implement, and not too costly.
"The way these things are going to evolve is that you do a client service first to find out what they want, as opposed to creating something from scratch that you think is a great thing and then try to sell it. It is lot easier to find out what they want and give it to them. There is a lot more logic in doing it this way but it has to be content-driven to be of value," says a New York investment banker.
Security concerns
Security has become the main concern of business conducted over the internet. Security does not restrict itself to encryption; it also includes firewalls, and constant monitoring of network activity to ensure the integrity of the overall system.
Most financial institutions and other online providers felt confident with the security embedded in their systems. Merrill Lynch's Michael Packer says: "We have taken a stronger position than many others in this area. We use software digital certificates today, and will allow clients in the future to select different levels and types of authentication and security, including not just the digital certificates used today but also SecureID cards and other methods. Clients who are looking at research, for example, may only need a password, while a client who is completing a very large-scale Euro-sovereign or high-yield transaction should have stronger security such as a digital certificate. We are hearing from our clients that they are satisfied with the level of security we offer."
Corporates seem more resistant to change for many reasons, with security being one of them. Treasuries of many corporations still operate in the traditional ways, using a combination of manual processes, intranets, faxes, phones and email. Only a tiny minority has ventured into online trading. To implement their online system broadly, the online providers must first educate their customers and convince them of the advantages, including lower processing cost and significant productivity gains.
The market and competition
Depending on scope and functionality - or breadth and depth - of the site, individual development costs can run from less than $1 million for a plain site to more than $100 million over a period of years for more comprehensive sites.
Although no figures were quoted by any institution, maintenance costs to support an existing infrastructure and to add content and functionality can be high. And if things go wrong it can be costly: one big international bank is known to have spent more than $5 million to develop a site only to discover on completion that the technology was inadequate and obsolete.
Only big players can afford such costs. The middle market will not be able to compete and is going to be squeezed out. "The securities industry is spending massive amounts to create institutionally oriented internet sites. In the US alone we anticipate that broker/dealers will spend $2.2 billion in 2000 to create integrated cross-business internet sites to enable their institutional clients to trade and directly access high-quality information and research," says Tower Group's Tabb.
"This is quickly becoming a game of scale, as the bulge bracket firms are using technology to attract clients and compete. As the larger firms invest in these new delivery channels and electronically enable themselves, it will be increasingly difficult for smaller firms to make these investments and hence competitively fall further behind."
Do smaller players have the resources to compete? Michael Packer of Merrill Lynch says: "Quite clearly, it is going to be a challenge for the smaller players to survive. It can cut both ways, however: on the one hand, clients will demand a level of global e-commerce capability that will be increasingly difficult for the smaller institutions to provide; on the other hand, systems like TradeWeb allow smaller participants to enter bids in particular markets, and if they have the best bid, clients will trade with them."
And who will be the losers? "Those who do not aim to radically change the behaviour of their professionals who deliver financial products, and the process by which transactions occur, to exploit the new technologies," says Bank of America's Mandell.
Credit Suisse First Boston (CSFB)
CSFB has a suite of products: PrimeTrade, PrimeRisk and PrimeWorld. These should appeal to traders, risk managers and corporate treasurers, primarily in fixed income markets.
PrimeTrade
PrimeTrade is an order-routing system that provides trading capabilities for listed derivatives, foreign exchange, and Eurobonds. Users can access markets 24 hours a day, six days a week. It allows integrating execution and clearing functions, and lets the user follow the status of orders precisely, from inception (registering and execution), to the allocation, clearing, and settlement process. It enables users to monitor positions and margin accounts in real time, and measures the value at risk of their portfolios for a broad set of fixed-income securities. An audit trail function follows the status of orders in real time.
The system also allows users to customize their own window, without forfeiting any market data. The product is well designed, fast, with all sorts of bells, whistles and metrics for the sophisticated trader. And end-users benefit from low transaction costs, paying about $1 per contract. PrimeTrade incorporates different levels of access, which guarantees security. On the negative side, not all features were working at the time of the demo, with "links" to research not yet operational and no analytics accessible at that time.
PrimeRisk II
PrimeRisk II is a risk management system designed for fund managers and corporate treasurers. It is fully integrated into CSFB's family of products. It provides users with the tools to meet increasing regulatory requirements, such as FAS-133 in the US. Analysis can be performed at various levels: by instrument type, currency, asset class, individual positions, fund/portfolio, or various portfolio blends. The system is designed to measure and manage risk, and it generates a number of measures including theoretical value and price; Monte Carlo VaR at different confidence levels; analytical variance based VaR; total return measurements; annualized rate of return; duration; standard deviation; the Sharpe ratio; credit exposures; deltas, gammas, vegas, etc.; volatilities; gains and losses.
The calculations are performed by CSFB's staff and provided online to customers in tabular form, 2-D graphs, 3-D graphs, charts, pie graphs, or histograms. The only thing the corporate treasurer has to do is to provide the underlying information concerning holdings to CSFB and it will model the instruments and portfolio, and subject those to the Monte Carlo simulation. The results are sent back to the customer online, reporting the risk of the position or group of positions. The calculations can be best performed if the client shares the entire portfolio. They can, however, be performed by CSFB without the customer providing all details (i.e. counterparties) thus allowing the valuation of portfolios without compromising confidentiality of trade data. Comprehensive customized reports can be generated, including hypothetical portfolios under various "what if" stress tests.
PrimeRisk II was officially launched in March. The components that make it a powerful tool are CSFB's capacity as a prime broker to provide a reliable source of data, the analytics offered by merging CSFB's proprietary models with the analytics provided by Algorithmics and the process to gather, store and retrieve data required for the broad spectrum of instruments and currencies.
PrimeWorld
The combination of PrimeRisk, PrimeTrade and PrimeClear (CSFB's proprietary electronic trading and clearing systems) in the PrimeWorld suite offers a web-based platform for complete end-to-end service in a single desktop application - electronic trading, order routing, settlement and clearance, real-time P&L monitoring, research and risk analytics.
Deutsche Bank
Deutsche Bank's Raroc 2020 is a risk management system suitable for corporate treasurers and fund managers. The Raroc service is offered by the custody area of the Deutsche Bank group, and consists of four basic steps.
First, the bank receives information about a customer's holdings, from the customer's custody accounts at Deutsche Bank, from the customer's other custodial banks, or via file transfer directly.
Second, the bank analyzes each holding to find its risk-factor sensitivities, usually by measuring how the price of the holding changes when interest rates, exchange rates or equity prices change.
Third, the bank computes the value-at-risk of these holdings at various levels of aggregation using Monte Carlo simulation.
Finally, the bank publishes the results in an encrypted, interactive internet application so that customers can observe and analyze the risk data on a standard web browser.
The product incorporates the following risk management functions: value-at-risk and exposure/sensitivity reporting for multiple portfolio levels; risk expressed in a variety of ways: in absolute terms, with respect to benchmarks (tracking error, active risk) or with respect to liabilities (surplus at risk); what-if analysis; limit/threshold monitoring.
The coverage includes domestic and international fixed income; 43 developing and mature equity markets; 50 currencies versus the dollar and 20 crosses; mortgages, mortgage-backed and asset-backed securities; futures, options, swaps, other derivatives; convertible bonds; and ADRs. Customers may chose the frequency of risk reporting.
Raroc 2020 can be up and running in one or two months and does not involve the costly up-front licence or development costs of built-in or vendor software, and the even more costly implementation phase. Future releases will include improved domestic and international equity analysis, new historical trend graphics, improved attribution of credit risk, and "what-if" analysis for portfolio reallocations and hedges. Risk reporting is provided for $500 billion in customer assets.
Given its high level of sophistication, the product seems easy to use. It allows users to manually input or download data from existing systems and then perform all sorts of financial gymnastics.
For example, to analyze financial risks globally, the system neatly slices risk exposures into a 3-D world of regions (e.g. Europe, the Americas, Asia, etc.), types of risk (equity, currency and interest rate), and time-periods, and within a single page displays where risks are and problems are most likely to occur.
George Zinn of Microsoft says: "We use this application to monitor the financial risks being assumed in the treasury. Raroc is a perfect application for treasuries where financial risk is not a core competency. The computations are performed offsite and then delivered via the web. These results can be viewed, sliced, and different scenario analyses can be performed via the secure web interface. Raroc results validate other risk system applications (VaR limits, scenario analysis, and stress tests) used in the treasury.".
Merrill Lynch
Merrill Lynch Direct Markets Group provides an integrated offering to corporate and institutional clients across a wide range of treasury activities, including pre-trade information, trade/execution, and various post-trade services. The product consists of several modules with various functions, including research, analytics, investment advice, underwriting, and trading. The system can be customized for each user and clients have a single way to navigate across all product areas and functions, with one password. The suite is structured as follows
Research and market insights
Merrill Lynch research is developed primarily for institutional investors and has powerful filtering mechanisms to allow fast, effective searches. There is an advanced alert capability via email and users can set up their profile to see only what interests them, going through any amount of criteria, including time, countries, industries, sectors, and individual analysts.
Such selection is a key attraction. Increasingly, customers want multi-dealer platforms, systems that deliver the prices and research of as many firms as possible. Through a strategic alliance with Multex.com, Merrill Lynch can link directly to Multex where clients, if enabled, can view aggregated research of other big securities firms - a feature much sought after by institutional clients. For example, an enabled portfolio manager client can go to the Merrill site and view research on the same subject from Merrill Lynch and other firms.
iDeal
iDeal is Merrill Lynch's platform to streamline the process of bringing new securities to market. The system displays all the deals in play, everything that has been filed in connection with any transaction, including details on intra-day pricing. By providing all the relevant information in one place, iDeal enhances efficiency for all the participants in the securities issuance process, whether institutional investors, issuers or syndicate members.
The issuer sees the book being built over time, the price-demand levels the book is at, and management presentations; the underwriter has all the critical information for the roadshow; the investor sees all the information about the investment opportunity and can indicate its interest within its limits. All the parties benefit from improved information, faster speed and operational efficiencies. The information is presented in an attractive interactive multimedia format, and iDeal is now used by Merrill Lynch for nearly every equity transaction.
As a further extension of the iDeal product, Merrill Lynch sends critical up-to-date information via the Blackberry pager to alert its staff, the issuer and the investor.
Post-trade services
The post-trade area offers centralized clearing and settlement, trade verification, and consolidated reporting across a wide range of products. This feature allows for better risk control, cross-netting and cross-margining of positions.
An example of the post-trade products is the Financial Futures & Options (FF&O) product that helps institutional clients implement risk management and investment strategies using fixed income, equity and commodity exchange-listed derivatives. The system allows a trader to monitor in real time the status of any of the trades done and accept or reject the selected them, while allowing his client access to the status of his trades, including trade confirmations, positions, trade prices, and journal entries. This real-time functionality has become critical with the advent of T+1 trading (next day settlement) in stock trading. The system also contains historical information.
Allied Irish Banks
Allied Irish Banks has several products of interest to the corporate treasurers:
FX Center
FX Center is AIB's web open site with live market rates and news. It presents in-depth analysis of markets, with morning commentaries, weekly analysis and monthly market forecasts; online breaking news, with a minimum of 40 stories throughout the day; detailed listing of 220 foreign exchange rates updated every five minutes; a full listing of FTSE 100, ISEQ shares, and selected North American shares; graphing capability for foreign exchange trends, with up to 650 currency pairs going back to January 1993; a secure channel to view and confirm transactions and incoming and outgoing international payment advices.
It is freely accessible without a password to anyone at AIB's site www.fxcenter.com. but the service focuses on the UK, Ireland, and the US.
Mobile electronic products
AIB provides two products, RateAlert and FX3. RateAlert provides foreign exchange rates, main market news and some equity prices on a paging network. Forex rates are updated every 20 minutes and market news is updated three times a day. FX3 allows bank customers to view up-to-date foreign exchange rates and equity prices on GSM mobile telephones at any time of the day, anywhere in the world. The user can personalize his/her channel of information, including when to receive the information.
Morgan Stanley Dean Witter
Client Link is the platform for Morgan Stanley Dean Witter's desktop interface with all the firm's institutional clients - institutional investors, corporations, and corporate treasurers. Different applications are targeted at specific clients, and Client Link can be customized to the client.
Debt Capital Market Services Online
DCMS Online gives investors and issuers online access to MSDW's fixed income market outlook, product and market data, and a range of unique issuer-specific tools. Within the "My DCMS" section, which is individually tailored for each company, a corporate treasurer can find the indicative levels where his company can finance in any of the fixed income markets under current market conditions. The system ensures complete price transparency and the information provided contains, among other data, secondary trading levels of the issuer's outstanding debt securities, the trading levels of comparable securities, indicative pricing levels for a new debt issue and current stock quotes.
Going a step further, into the "My Deal Workspace" collaboration and execution stage, the system provides the users with an impressive set of collaborative and trade support tools that contain issuer-specific information and a document repository for all stages of a transaction, including presentation of data, execution and documentation.
Given the proprietary nature of this product and its uniqueness, the demo was limited, and only key functions were briefly shown. So it is difficult to describe and evaluate DCMS Online as thoroughly as some of the other products. There was only one minor hiccup during the first brief demo, involving a Java applet, but the problem seemed to have been fixed by the second demo.
All this data is supplemented with relevant market and product information, including daily global market commentary, market outlook and forecasts, government bond trading information, and a bond calculator, all in one location. For marketing new issues to investors, information is provided on all new issues, including terms and conditions and syndicate structure. Additional topics and features include:
* Top Story: topical and noteworthy product, market event or transaction of the week, including the most important issue which corporate treasury staff should know about.
* DCMP Products: provides a brief introduction and overview of particular products such as commercial paper, medium-term notes, liability management and derivatives, and up-to-date information on market trends, developments and commentary.
* New Issue Calendar: summary of terms for current announced transactions in the market, as well as an archive of past debt transactions.
* Market Wizard: a graphing tool, which allows an issuer to analyze historical information on benchmarks, credit spreads and issuance trends.
Risk Link
RiskLink is a suite of equity risk and valuation applications to help traders and risk managers monitor portfolios of listed and over-the-counter stocks, options, and futures. It enables users to value individual positions and entire portfolios and to view market risk exposures dynamically. The product covers nearly one million individual listed equity and equity-derivatives products in every big international market.
RiskLink uses the Morgan Stanley Dean Witter library of derivative valuations functions to compute theoretical option and futures prices, as well as delta, gamma, kappa, rho, theta and implied option volatilities. It also provides hooks into real-time market data provided by third-party vendors. RiskLink combines product and positions data to allow traders and management to: value a potential trade quickly; hedge unwanted exposures and see the results in real time; supervise risk in large portfolios and graph and report findings.
Other products of interest to corporate treasurers and risk managers include Market Information, Research Link, Basket Link, and TradeXL. Market Information provides information on the world's securities markets, covering most of the world's emerging and developed markets. Research Link provides publications and reports on fixed income and equity, with a powerful electronic search. BasketLink is a tool to construct and analyze equity portfolios and TradeXL is a real-time trade execution system, primarily for equities business.
Client Link was released in 1996 and has 40,000 users, according to William White, managing director, fixed income at Morgan Stanley Dean Witter's New York office. The product is fully scaleable and secure, allowing institutional clients to conduct trading and financial analysis over the web.
Bank of America (BofA)
Bank of America's Global Markets Group (GMG) site allows users to tap the power of the internet to manage market risk and to conduct online transactions providing market information, trading and hedging ideas, focused data and analysis, risk analysis monographs, quantitative tools, and automated trading. It has a loyal readership of more than 2,500 clients, representing Fortune 500 companies and a growing number of fund managers.
BofA's GMG internet product is designed for corporate treasuries and fund managers and is organized under four sections:
The Trading Floor
This contains BofA's best trading ideas, supporting fundamental, technical, and quantitative analysis, and detailed discussions of the appropriate and inappropriate use of specific financial products. The bank plans to release online trading for foreign exchange, fixed income, and derivative transactions this year. The online trading system will also provide services such as confirmation and valuation of derivative instruments and financial products.
The Tool Shed
This module contains online market data and analysis. The Chart Room contains a comprehensive database of foreign exchange, interest rates, equities, commodities, and macroeconomic data. In addition to the graphing capabilities, the data can be downloaded to any client spreadsheet. The Options Calculator provides options pricing and graphical analysis. The application is Excel-based and connects to the bank's online market data, which provides the added capabilities of operating independent of a live internet connection. Expected new applications include The Budget Rate Calculator, The Delta Module (for option replication), and The Cost of Capital.
The Library
The Library is an archive of economic and market research articles and market rate forecasts. The International Briefings section provides country and regional views of research materials and economic data. The Market Calendar contains economic releases, auctions, events, and world holidays. The Forum is an archive of conference calls with distinguished economists and market analysts. The FX Forecasts application covers more than 45 countries with detailed graphs and associated research.
Treasurer's Corner
This is devoted to the unique issues, constraints and objectives faced by corporate treasury groups. It offers practical thoughts on topics ranging from setting foreign exchange budget rates, estimating international costs of capital, and evaluating the accounting and economic "effectiveness" of hedging strategies. In addition to providing a comprehensive archive of journal articles, clients that have missed the bank's seminars and workshops can view the presentations interactively.
This site provides a wealth of information of interest to corporate treasurers, fund managers and other market participants. Whether you need to find out about the implications of US accounting rule FAS-133, the technicalities of trading the euro, the history and volatility of the Czech koruna, view the calendar of economic announcements, attend a seminar on FX risk management... it is only a few clicks away.
The product seems well designed. Navigation is easy and intuitive, and a powerful search engine is always available to find more information on the subject sought. For example, a search on the subject of FAS-133 produced over 130 results, including the FAS133.com web site. The product is undergoing an upgrade, and new features are expected soon. The analytical capabilities of the system (such as the options calculator and portfolio optimizer) were not shown during the demo and could not be assessed.
Bank of America has also recently entered into strategic alliances with several "internet" firms, including Ariba, to broaden its distribution network. Saurabh Narain, head of e-commerce for derivatives at Bank of America, Chicago, says: "Banks have to develop internet technology on three different planes: inter-dealer execution engines, client business on own web site with straight-through processing, and finally client business on market portals as these portals emerge. The important thing is to manage the time to delivery of the systems which is a function of the criticality of the business need."
UBS Warburg Dillon Read
UBS Warburg Dillon Read offers several online products, consisting of a suite composed of research, market access, risk management, and chat and collaboration technology.
Research
This provides detailed global information and recommendations to investors on a range of topics. It is also useful to corporate treasurers, who can obtain information on their industries and competition. The information can be manipulated in ways impossible in the past, including searches by region, country, industry, company and analyst. The information can then be displayed in text or graphically and be exported to other documents, including spreadsheets for further analysis.
Clients can also customize their pages and be notified as more information on a given subject becomes available. End-users can even create their investment portfolios, and play "what-if" analysis and receive information pertinent to their investments. Users can also compare industry sectors or individual manufacturers with relevant data, indicators and performance. The system incorporates a comprehensive real-time economic calendar, daily market comments using audio and streaming video technologies.
ECP and EMTN
These two products provide borrowers and institutional investors with access to real-time new issue ECP and EMTN pricing in all main currency sectors. It allows them to get a fair representation of the market, making the ECP and EMTN markets more visible and transparent.
The product is good at finding the cheapest or most expensive paper ranked within various maturities, currencies and credit ratings. It provides information on various arbitrage opportunities, ie, where a corporate should issue the paper and how it should be swapped to obtain the lowest financing costs. It may also be of use to investors who can find in real time the best investment and arbitrage opportunities. For example, suppose an investor wishes to buy AA1/AA+ ECP and have the investment denominated in Swiss francs. Finding the best value would usually take several hours and by this time the market may have moved. With this system, by pressing the sort button one can bring up the cheapest Swiss franc ECP on the screen instantly, then execute the trade by a simple click.
Similarly, on the EMTN site, suppose a Japanese investor wants to buy a yen-denominated note linked to the Nikkei but with a minimum coupon. This system will make the information for that type of transaction immediately visible, with EMTN target levels and live feeds of swaps prices, and all the necessary calculations. All data can be sorted and filtered to exact specifications, including maturities, ratings, currencies, or issuer types and is standardized for the quoting conventions of the investor.
DebtWeb
DebtWeb is designed for investors to make investment decisions online. Corporate treasurers will find this site particularly useful, seeing in real time the book building, and orders coming in as demand for their bonds arises. Investors can choose to hedge their positions online or sell other bonds online to buy against the new issue, and the allocations for the bond go out directly over the internet.
DealKey
Provides information on WDR's equity and equity-linked offerings globally. It is also accessible through mobile phones using Wap technology. DealKey is planned to evolve into a complete service including interactive transactional capabilities.
Investment Banking Online (IBOL)
IBOL, which was due to be launched in May, will combine all the previous applications with trading over the internet in one fully integrated suite of products and services. The preview of the beta version of the product was impressive and went smoothly.
Stuart Clenaghan, executive director, and head of fixed income e-commerce, says the IBOL site will include: cross-referenced research; equities; foreign exchange; fixed income; treasury products (deposits, forwards, options volatility); corporate finance; data submission from the trading floors around the bank; learning centre with education and training; and a search engine across the entire site.
The system is supplemented by an Avastar video-conferencing system, and a collaborative system to exchange information (including spreadsheets) in real time, including two-way communications and a chat room open to all customers. Most of those communication and collaborative tools were used during a live remote demo, functioned flawlessly and showed the potential of the powerful internet collaborative technologies. According to a bank spokesman, about 5,000 big institutional investors globally are using the sites of UBS/WDR, and between 20% and 30% of all orders now come through the internet.
The Beast Online
There are also a number of non-bank ASPs that provide products and services to corporate treasurers and other risk managers. One is The Beast Online. Its service offers interactive decision-support applications that can be used by market makers, traders, risk managers, treasurers, and other financial professionals. It provides most things needed to value simple and complex derivatives, analyze fixed-income securities, track underlying hedges, and spot relative arbitrage opportunities.
The Beast features analytical calculators for foreign exchange, fixed income, derivatives, capital markets, and equities and treasury products. The system covers all the main currencies and most of the minor ones. With more than 130 interactive calculators and grids and a broad choice of term structure models, users have access to a wide range of analytical functionality.
It can be used to reduce market and model risk and track volatile markets. It is an integrated system that calculates derived pricing, hedging, and relative value analytics for global markets. For example, using the relative value functions, the user can look at the relative value between a bond option and a swaption simultaneously adjusted for yield differences.
The real-time analytical functionality for the various instruments is transparent, and uses actual market data from selected sources, allowing the user access to pricing of transactions; mark-to-market; and arbitrage between various markets.
The Beast also delivers real-time news and market data. It uses data from several live feeds including, but not limited to, GovPX, Bridge, COMTEX and Tullett & Tokyo. Because the product is delivered over the internet, it is more cost-effective than traditional software packages. The system features real-time collaboration tools, allowing users on both sides of a transaction to determine the extent of the collaboration.
The Beast's content and financial logic are combined with a fail-safe network of servers and software that ensures that interactive content is delivered securely and instantaneously to the end-user.
Users can access it from any Windows client or Java-enabled browser, both internet- and intranet-based, by simply downloading a 32-bit thin client display application to obtain instant access to all its features. More than 500 users worldwide are using it on a free trial basis.
Boris Antl is a freelance journalist and financial software consultant based in Berkeley,
California, and can be reached at borisantl@home.com
| Name of institution: |
Credit Suisse First Boston |
| Name of product: |
PrimeTrade |
| Feature/function: |
Commentary or not available (NA): |
| Main focus of the system |
Internet-based global electronic trading |
| |
and order routing system designed for |
| |
institutional investors trading across |
| |
many financial products |
| Scope |
Primarily listed derivatives, foreign exchange, |
| |
Eurobonds, US treasuries, European sovereigns, |
| |
US CPs, European CPs, agencies, investment grade corporates |
| Valuation tools |
|
| Portfolio analysis |
PrimeRisk provides value-at-risk and other portfolio modelling |
| Other stand-alone |
|
| financial calculators |
Bond yield, options , foreign exchange, hedging rates |
| Risk analysis tools and techniques |
|
| Market risk |
Full instrument valuation and Monte Carlo value |
| |
at risk (VaR) via PrimeRisk II |
| Credit risk |
In test mode |
| Collateral management |
NA |
| Market data and tools |
|
| Market news |
Global financial and commodity products |
| Historical market data |
In planning mode |
| Technical models |
In planning mode |
| Forecasts |
NA |
| Resources |
|
| Accounting information |
All transaction information in PrimeTrade |
| Tax information |
NA |
| Legal information & documentation |
Documentation is included |
| Forex control & regulations info |
NA |
| Research |
Hyperlink to CSFB research website |
| Collaboration tools |
|
| Pose questions to experts |
Yes |
| Chat room |
Yes |
| Forums |
Yes |
| Video conferencing |
NA |
| Application sharing/whiteboarding |
NA |
| Productivity tools |
Calculator |
| Advisory/consulting services |
NA |
| Client training features |
Comprehensive training is provided to each |
| |
client for all PrimeTrade applications |
| Execution/online trading |
Yes |
| Integration with internal systems |
|
| Export from internal to vendor’s |
Yes – fully integrated in various modes |
| Export from vendor’s to internal |
Yes |
| Export from Excel to vendor’s |
Yes |
| Export from vendor’s to Excel |
Yes via the PrimeClear application |
| Technical Specifications |
|
| Internet/intranet |
internet |
| PC operating system used |
Windows, NT, UNIX, etc. |
| Internet protocol |
Java |
| Hardware required |
486MG PC |
| Security features |
Multi-level security - RSA for data |
| |
Confidentiality and SHA for integrity |
| End-user customization |
Customized reporting is available |
| Service/system pricing |
Varies depending on scope and range of services provided |
| Contacts for more info |
Philippe Buhannic, New York 212-325-2318 |
| |
Philippe.Buhannic@CSFB.COM |
| Name of institution: |
Deutsche Bank Group |
| Name of product: |
Raroc 2020 |
| Feature/function: |
Commentary or not available (NA): |
| Main focus of the system |
Risk measurement service bureau; provides risk reports to institutional investors |
| |
via encrypted internet application. Customers or custodians send simple |
| |
holdings feed, we conduct risk analysis. |
| Scope |
Market risks: equity, interest-rate, currency, commodity. products include: cash, |
| |
futures, options, swaps, mortgage, asset-backed, convertibles |
| Valuation tools |
|
| Transactions analysis |
Use many valuation models to decompose holdings into risk exposures;and |
| |
can include benchmarks (for tracking error) or pension liabilities. |
| Portfolio analysis |
Risk factor sensitivities are rolled up at the portfolio level; we also can include |
| |
the sensitivities of the benchmark |
| Other stand-alone fin calculators |
NA |
| Risk analysis tools & techniques |
|
| Market risk |
Uses Monte Carlo VaR to reflect the profile of non-linear instruments |
| Credit risk |
Shows simple credit spread risk |
| Collateral management |
NA |
| Market data and tools |
|
| Market news |
NA |
| Current market data |
Maintain a set of feeds for use in arriving at risk factor sensitivities |
| Historical market data |
Maintain historical market data to provide the covariance information |
| |
underlying the VaR calculation |
| Technical models |
NA |
| Forecasts |
NA |
| Resources |
NA |
| Collaboration tools |
|
| Pose questions to experts |
Customers contact service bureau professionals for consulting and |
| |
questions. |
| Chat room |
NA |
| Forums |
NA |
| Video conferencing |
NA |
| Application sharing/whiteboarding |
NA |
| Productivity tools |
NA |
| Advisory/consulting services |
Clients are assisted in interpreting and using risk reports, and setting risk |
| |
thresholds |
| Client training features |
Clients are trained in the use of applications |
| Execution/online trading |
No |
| Integration with internal systems |
|
| Export from internal to vendors |
Yes |
| Export from vendors to internal |
Yes |
| Export from Excel to vendor’s |
Yes |
| Export from vendor’s to Excel |
Yes |
| Technical specifications |
|
| Internet/intranet |
Encrypted internet application |
| PC operating system used |
Windows 95/NT 3.51 or higher; Netscape Communicator 4.0 or Internet Eplorer |
| |
4.0 or higher; Adobe Acrobat Reader |
| Internet protocol |
HTML |
| Hardware required |
Intel Pentium, 32 Mb RAM |
| Security features |
128-bit encryption in the US, 40-bit elsewhere, password protection |
| End-user customization |
Customizable analysis tools; all reports download into .csv format for use in |
| |
Excel or databases |
| Service/system pricing |
Minimum cost $25,000 per year, cost varies by frequency of risk reports, |
| |
number of portfolios, and complexity of portfolios |
| Contacts for more info |
Michelle McCarthy, Seattle, WA, USA, +1-206-325-2020, |
| |
Michelle.McCarthy@db.com |
| Additional information |
www.raroc2020.comFeature/Function: |
| Name of institution: |
AIB Corporate & Commercial Treasury |
| Name of product: |
FXCentre |
| Feature/function: |
Commentary or not available (NA): |
| Main focus of the system |
E-treasury portal for corporate and medium size companies |
| Scope |
Live forex rates, equities, breaking news, interactive research, economic |
| |
commentary and forecasts, mobile finance, currency trends, products & |
| |
services. Also provides a secure environment to confirm currency deals and |
| |
view international payment transactions |
| Valuation tools |
None |
| Risk analysis tools and techniques None |
|
| Market data and tools |
|
| Market news |
Live feed with up to 50 breaking news stories per day |
| Current market data |
Live market commentary updated throughout the day, from 07.00am - |
| |
17.00pm, Live forex rates updated every three minutes |
| Historical market data |
Five-year historical foreign exchange rates and interest rates for 625 currencies |
| |
online, graphs and trends |
| Technical models |
None |
| Forecasts |
|
| Resources |
|
| Accounting information |
NA |
| Tax information |
NA |
| Legal information & documentation |
NA |
| FX control & regulations info |
Meets all regulations |
| Research |
Extensive research from chief economist and research team on markets, |
| |
currencies, interest rates, domestic and international economies. Visit |
| |
johnbeggs.com on fxcentre to see our online research centre |
| Collaboration tools |
|
| Pose questions to experts |
Yes - email our chief economist and he will reply confidentially |
| Chat room |
NA |
| Forums |
NA |
| Video conferencing |
NA |
| Application sharing/whiteboarding |
NA |
| Productivity tools |
NA |
| Advisory/consulting services |
Risk management advisory services are provided to clients by AIB Corporate |
| |
Treasury relationship dealers |
| Client training features |
Training is provided by us to customers in the form of six treasury |
| |
familiarization training courses each year. |
| Execution/online trading |
Quarter 3 2000 |
| Integration with internal systems |
|
| Export from internal to vendor’’s |
Export to Excel for forex deal confirmations and international payment advices |
| Export from vendor’s to internal |
No |
| Export from Excel to vendor’s |
No |
| Export from vendor’s to Excel |
Yes |
| Technical specifications |
|
| Internet/intranet |
internet |
| PC operating system used |
Windows (all environments) |
| Internet protocol |
HTML |
| Hardware required |
Standard |
| Security features |
SSL 128 bit encryption for the secure area of the site |
| End-user customization |
Yes - users can customize the live rates, equities or personalize their own |
| |
channel of information for their mobile phone using fxcentre.com |
| Service/system pricing |
Free |
| Contacts for more info |
Susan Kelly, AIB Corporate Treasury, +353-1-6417672 e-mail |
| |
Susan.A.Kelly@aib.ie |
| Name of institution: |
Morgan Stanley Dean Witter |
| Name of product: |
Client Link |
| Feature/function: |
Commentary or not available (NA): |
| Main focus of the system |
Private, secure internet platform providing browser-based trading systems, |
| |
research, market expertise and proprietary information to over 40,000 users. |
| Scope |
Research and tranding systems available to institutional equities, fixed-income, |
| |
debt and equity capital market, high-net worth clients. |
| Valuation tools |
|
| Transactions analysis |
MSPA, MSPM, swaps, DCMS analytics, etc. |
| Portfolio analysis |
Basket Link, Query Link, P&L Link, MSCI fixed income indices |
| Other stand-alone |
|
| financial calculators |
Forex calculators, swaps calculators, P&L calculators, Risk Link for |
| |
equity derivatives |
| Risk analysis tools and techniques |
|
| Market risk |
Basket Link, Risk Link for equity derivatives |
| Credit risk |
fixed income research on managing credit risk |
| Collateral management |
n/a |
| Market data and tools |
|
| Market news |
Up to date trader commentary, economic commentary and voice recording of |
| |
fed release interpretation |
| Current market data |
Big Charts (US delayed); Reuters Investor. |
| Historical marketdata |
indicative data, and price, yield and spread data on all securities in the MSCI |
| |
fixed income indices. |
| Technical models |
|
| Forecasts |
Power Zero, prices for monthly forwards and options contracts. |
| Resources |
|
| Accounting information |
NA |
| Tax information |
NA |
| Legal information& documentation |
NA |
| Forex control & regulations info. |
NA |
| Research |
Proprietary equity, fixed-income and quantitative/derivatives research. |
| Collaboration tools |
|
| Pose questions to experts |
NA |
| Chat room |
NA |
| Forums |
Online conference calls. |
| Video conferencing |
Online roadshows |
| Application sharing/whiteboarding |
NA |
| Productivity tools |
The Cash Entry service lets clients send internet cash-movement instructions |
| |
The Proxy Vote service allows clients to vote their shares over the internet. |
| |
The MSCI Index Service allows clients to download their benchmark indices |
| |
The Market Information service provides trading, execution, clearance, and |
| |
settlement information for over 60 countries worldwide |
| Advisory/Consulting Services |
N/A |
| Client Training Features |
Prime Brokerage education link, site tour, passenger-application user |
| |
documentation/online help, tutorials. |
| Execution/online trading |
FID new issues, iTicket, TradeX |
| Technical specifications |
|
| Internet/intranet |
4 Sun E4500 systems, 4 CPU’s, 4Gb memory, Netscape Enterprise Server 3.63, |
| |
ServletExec 2.2, JDK 2.2, Epic 3.0.2, ldap 3.1, infoseek 2.05, RealServer G2, |
| |
Webconnect 3.5, Bigdog 3.01, FastCgi 1.5.13c |
| PC operating system used |
Windows 95, 98, NT, 2000 |
| Internet protocol |
https |
| Hardware required |
PC |
| Security features |
Password and application-level SecurID access |
| End-user customization |
Language preferences, menu customization, password reset. |
| Service/system pricing |
0 |
| Contacts for more info |
Ed Altman, 762-4464, 750 7th Ave, ealtman@ms.com; Barbara Donnelly, |
| |
762-2554, 750 7th Ave., donnelly@ms.com; Jon Saxe, 762-2306, |
| |
jsaxe@ms.com |
| Additional information |
We have tons of product literature that may help you. |
| Name of institution: |
TheBEAST.COM |
| Name of product: |
TheBEAST.COM |
| Feature/function: |
Commentary or not available (NA): |
| Main focus of the system |
TheBEAST Online is an internet-delivered suite of financial applications for |
| |
financial markets. It offers traders, fund managers, treasurer clients over 100 |
| |
analytical applications which help them arrive at the best possible price |
| |
arbitrage opportunity for subsequent trading. |
| Scope |
Fixed income, equities, foreign exchange, derivatives (swaps, options, |
| |
exotics), FRAs, plus news and market data. New asset classes being added |
| |
regularly. |
| Valuation Tools |
|
| Transactions analysis |
Swaption Calculator determines the net present value (NPV) of a swaption |
| |
using either the Hull-White model (1993), also known as extended Vasicek, or |
| |
the Black-Karasinski model (1991) of short interest rates. Pre-trade pricing |
| |
relative value arbitrage and micro hedging |
| Portfolio analysis |
Future development |
| Market data and tools |
|
| Market news |
Broad coverage of streaming financial markets and general news |
| Current market data |
Bridge, GovPX, Tullett & Tokyo and Comtex. Others in discussion. |
| Historical market data |
Under development |
| Technical models |
Other analysis in alpha testing. |
| Research |
In discussion with research vendors and suppliers |
| Collaboration tools |
|
| Pose questions to experts |
Integrates with standard web-based tools, for chat, discussions, etc. |
| Chat room |
see above |
| Forums |
see above |
| Video conferencing |
see above |
| Application sharing/whiteboarding |
Sophisticated real-time collaboration across applications with permissioned |
| |
locking viewing and/or editing capabilities. |
| Execution/on-line trading |
Also advanced support for on demand pricing of structured products is being |
| |
developed. Under development for several asset classes |
| Integration with internal systems |
XML and COM/Excel links for application distribution across |
| |
enterprise boundaries |
| Export from internal to vendor’s |
Our ASP services addresses specific time-to-market requirements. We have |
| |
constructed our platform such that a customer, consultant, or even ourselves |
| |
can make connections to legacy systems, bring in real-time data (news, quotes, |
| |
etc.) or integrate on the front end to fat-client components like spreadsheets or |
| |
objects in real-time. |
| Export from vendor’s to internal |
Live relative links to applications on demand for COM enabled applications and |
| |
containers like Excel |
| Export from Excel to vendor’s |
see above |
| Export from vendor’s to Excel |
see above |
| Technical specifications |
|
| Internet/intranet |
TheBEAST.COM provides the platform (infrastructure) and the hosting capability |
| |
for firms that want to develop and deploy sophisticated, real-time, transactional |
| |
|
| PC operating system used |
NT 2000 on servers. Also 98, NT, 2000 as well as laptops, PDAs and wireless |
| Internet protocol |
All |
| Hardware required |
|
| Security features |
Data compression, firewall, HTTP tunnelling, thin client |
| End-user customization |
We provide a flexible, customizable environment that supports advanced |
| |
permissioning which allows us to customize solutions for each individual |
| Service/system pricing |
Currently in FREE trial mode over 650 users in 40 countries. Base price |
| |
including data vendors mentioned above is $300 per month. Additional |
| |
exchange data might change pricing structure. |
| Contacts for more info |
Jennifer Massing, VP/PR/Marketing, 212-602-4243 |
| |
email: jmassing@thebeast.com |
|