Best structured products support system: Murex

Asia Risk Awards 2021

Matthieu Avanthey, Murex

Murex’s seamless front-to-back-to-risk structured product solutions adapted for seemingly all client situations saw it win this year’s best structured products support system award. Over the past 12 months, despite the ravages of Covid-19, Murex’s MX.3 platform helped its clients in developing their structured products businesses – and Murex continued to enhance its offerings.

“Structured products have always been an area of focus for Murex. Our clients are looking for a complete solution covering their entire capital markets activities, and structured products are a key element to this,” the company said in its pitch submission.

Matthieu Avanthey, Murex’s Asia-Pacific head of product management, adds: “Supporting structured products in Asia starts with dealing with the sheer diversity of payoffs. Each local market has its specific flavours and best-sellers, and we have to provide them all: equity autocallables, foreign exchange target redemption notes, range accruals and so forth.”

Murex’s extensive catalogue of products is complemented by providing two different ways for a financial institution to create new products in the platform themselves: a simple Python-based user payoff language allowing clients to reuse their existing Murex analytics, and a full-fledged application programming interface (API) to integrate the bank’s own analytics and products.

“Once you have the products, the next key challenge is to be able to evaluate them and measure their risk,” Avanthey says. “Depending on the products, this can require complex models with a potentially important impact on the speed of your system.”

MX.3 is well-equipped to serve banks in the region in this area. It provides a range of exceptional analytics across all asset classes. Two highlights include the Libor market model (LMM) for interest rates and the local stochastic volatility diffusion on FX and equities, both of which were once considered as the preserve of top-tier international banks.

Costs down, margins up

“We allow financial institutions to expand their structured product business and grow trading volumes,” says Alexandre Bon, Murex’s head of market development for the Asia-Pacific region. “Transferring this activity from a patchwork of spreadsheets and specialised systems onto MX.3 enables them to scale up – with much improved computational capacity and, even more importantly, through data integration and the streamlining of business processes.”

Murex has taken particular care to ensure that its structured products are natively integrated into all the processes the MX.3 platform provides. Traders can see and manage them with the rest of their portfolios, risk managers can monitor their limits and the corresponding payments can be automatically generated.

“Our clients value the automation and cost-savings this integration provides; this allows them to greatly reduce the marginal cost of these complex products, while squashing time-to-market,” says Bon.

Regional banks have historically distributed structured products they have bought from larger global players to local clients, but in recent years some of them have started building the capacity to warehouse the risk. This allows them to greatly increase their profit margins, but it is also much more demanding in terms of people and systems – and Murex has been there to support them in this.

Our clients value the automation and cost-savings this integration provides; this allows them to greatly reduce the marginal cost of these complex products, while squashing time-to-market

Alexandre Bon, Murex

“MX.3 is in a unique position to enable our clients to do this,” says Avanthey. “We handle both structured products and their hedges; we provide exceptional trading tools to manage positions and risks, and the scalable infrastructure to handle rising volumes.”

Recent trends include the rise of equity autocallables, with several institutions in mainland China, South Korea and Malaysia equipping themselves with MX.3 to achieve their ambitions.

The never-ending race

“Contrary to more stable businesses like FX cash, structured products evolve continuously,” continues Avanthey. “New products appear, practices evolve and new regulations can greatly impact IT needs”.

For instance, the introduction of initial margin rules across the region has strengthened the need to compute Greeks for all products – even for banks who were white labelling. This led several banks to reach out to Murex to help them support their structured products portfolios.

Managing the needs of more than 60 regional clients, who are dealing with structured products in challenging conditions, is an impressive achievement for the Murex teams.

“The challenge for our clients is to keep up with the changes,” says Avanthey. “To help them, we have deployed 30 solution experts and six quantitative analysts on the ground throughout the region, listening closely to our client needs and accompanying them on their structured products journey. They work directly with our development teams – both to make sure our clients benefit from the latest global trends, and to build the right solutions for our local markets.”

For example, Murex experts have recently helped clients in mainland China develop their booming structured deposits business, by building a packaged solution fitting the specificities of this market. They are also working with a South Korea security house to support their extensive catalogue of structured products and embed some of their proprietary analytics into the platform. They are as well contending with more sweeping changes, like the Libor reform.

“The Libor discontinuation and the appearance of the new risk-free reference rates have multiple and significant impacts on structured products,” Avanthey says. “To cite just one, the LMM will have to be adapted to the new world. We will release our implementation of the forward market model, which addresses this, in early 2022.”

On top of addressing today’s challenges, Murex keeps a keen eye on the future.

“We see digitalisation as the next frontier for structured products,” says Avanthey. “We are excited to introduce our new derivatives digitalisation solution, Eden, to our clients in the region. Essentially, it is a price digitalisation operating system, allowing clients to easily distribute new products while giving them full control on the way they assemble their final prices from different components. With Eden, we hope to democratise the digitalisation of structured products for all of our clients.”