Pricing and trading system of the year: Murex

Asia Risk Awards 2021

Omar El Harit, Murex

In the current low-interest-rate environment, equity products and equity structured products have been popular with yield-hungry investors.

Omar El Harit, head of front-office client services, Asia-Pacific at Murex, says the best seller in the Apac region is autocallables, a structured product that can return the capital and attractive coupons if a basket of stocks all remain stable or go up, at the expense of a risk of losing part of all the capital if one of the stocks plunges. “It comes in many flavours depending on the countries, but the popularity of this basic framework is near-universal despite its potential risks,” he says.

As volumes for autocallables rise across Asia, banks handling these products in an ‘artisanal’ manner, typically in spreadsheets, realise they need to upgrade their IT capacity to handle autocallables.

Banks also face additional pressure from regulators to evaluate and adequately manage the risk of these products, with recent regulations such as the bilateral initial margin reform. They are now required to produce Greeks for the Isda standard initial margin model calculations.

MX.3, Murex’s flagship platform, supports trading, treasury, risk and post-trade operations. It helps clients meet regulatory requirements, manages risk and controls IT costs. MX.3 assists clients in equipping their equity trading desks and handling their autocallable portfolios.

Murex has focused on equity structured products over the past few years, in particular those with autocallable features. El Harit says Murex is constantly enriching its features, refining its analytics and working with clients to adapt to local specificities and flavours.

“Our recent focus has been on the position management side of the products: more and more clients are starting to warehouse the risk of autocallables – ie, not only white-labelling them from bigger banks, but actually getting the bank’s traders to manage the positions. If the bank has the skills and the system to achieve this, this shift makes the business much more profitable since there is no longer a need to transfer part of the profits to the international banking counterparty,” he says.

For example, a major Korean security house decided to go from an in-house system to Murex’s MX.3 to handle its large volumes of autocallables and other structured products and its portfolio of cash equities and bonds.

Murex is also helping clients through their Libor transition journeys. Jurisdictions and markets, such as cash and derivatives markets, can follow diverging approaches and timelines. This means there are many competing options in market conventions, alternative benchmarks and so on, and it can take a long time for a market consensus to emerge.

Financial institutions need to support many alternative approaches, and time-to-market is critical, particularly in analytics.

For example, in the last 12 months, Isda published its fallback transition mechanism specifications and fallback rates fixing and accrual logic. But later on, central counterparties disclosed their own approaches. “We then had to adapt our transition events accordingly, which we had first developed so far on best guesses from ours and our clients’ rates specialists. The changes were not drastic, but the devil is in the details,” he says.

Murex’s development teams ensured it could deliver all the necessary changes and new features to clients without requiring them to upgrade to the most recent version of MX.3. This was achieved through importable configuration changes or targeted patches that could be deployed in production with minimum regression-testing.

In the past year, Murex has been investing in Eden – Electronics Derivatives Negotiations – a subsystem of MX.3. Eden is a price digitalisation operating system for financial institutions. It allows banks to leverage MX.3’s pricing and analytics easily or build their own value-added content, supported by a fully integrated architecture.

“For example, you could digitalise your FX options desk through Eden by building your prices using MX.3 mid prices, a proprietary bid/offer model from a trader spreadsheet, regulatory checks from a third-party software, sales margin plugged from a central data repository, and the MX.3 XVA engine. This would be connected to the bank portal through our REST APIs, and to the FX options trading desk through request for quotes and publication of volatilities. You could then plug your equity derivatives using the same technologies into a multi-dealer platform for minimal cost,” he says.

Eden is now ready for a piloting phase, and Murex is in contact with several banks in the region to collaborate on this.

While Eden is Murex’s most prominent digitalisation initiative, the firm has other ongoing projects, including the technical upgrade of its current API catalogue. It will soon launch a new API on its LiveBook real-time position management solution to allow the digitalisation of position keeping. It is also working on a Curves API to enable banks to share rate curves analytics of MX.3 with the rest of their ecosystem.

Murex has added a few clients within the region, such as Bank of Hangzhou, despite running its processes remotely.