Pricing and trading system of the year: Murex

Asia Risk Technology Awards 2020

The coronavirus crisis saw markets lurch into previously unknown territory, with sharp rises in volumes, accelerated market movements and extreme levels of volatility across asset classes. This posed serious resilience tests for pricing models and trading infrastructures. It did not help that at the time trading organisations were preoccupied with preparations for a string of imminent new regulations.

Although regulators have since provided some relief by delaying target implementation by a year for the Fundamental Review of the Trading Book and phase five of bilateral initial margin, interbank offered rates (Ibor) replacement, with its myriad impacts and unknowns, is still targeted for the end of 2021. 

Additionally, the crisis increased the pressures on banks to digitise. Banks are having to speed up the opening of their trading business processes to clients, giving them live price streaming and digital quote negotiation and booking. In these challenging circumstances for pricing and trading systems, Murex’s MX.3 platform proved its worth. 

“The Covid-19 crisis has served to reveal the underlying quality of trading platforms,” says Omar El Harit, head of front-office client services, Asia-Pacific, for Murex. “It has thoroughly tested the basics in terms of the robustness of analytics and technologies. MX.3 proved its resilience and scalability with clients across the region, providing reliable access to pricing and risk management capabilities in volatile markets.”

Omar El Harit

El Harit gives the example of a large Asian bank that was a long-time user of its proprietary Tremor Local Stochastic Volatility (LSV) model for foreign exchange derivatives. “LSV is a well-known market standard in FX options with a track record in matching market prices consistently. More importantly, in time of crisis and contrary to most other models, LSV captures stretched market dynamics extremely well and provides invaluable insights to hedge positions accurately despite sharp market movements,” he says.

The bank also uses Murex’s LiveBook scalable portfolio monitoring, which can revalue tens of thousands of exotics in near real time – of critical importance in a time of crisis where hedging decisions must be fast and accurate.

“Being able to use the Tremor LSV model along with the Livebook technology for position keeping gave the bank the right tools to steer its books in the storm by keeping real time control on its risk,” says El Harit.

MX.3 demonstrated the same strength and resilience in cash trading, with its high-frequency and low-latency demands. “When the Covid-19 turbulence hit the market, our clients with leading FX cash businesses fed back to us that their MX.3 platforms seamlessly absorbed the sharp increase of transactions,” says El Harit.

MX.3 integrates trading, back office and risk in a single platform and unifies all transaction, position, market and reference data.

“The MX.3 trading platform then becomes the single source of truth not only for these data, but also for all calculations required across the enterprise, supporting sales, trading, P&L, risk, accounting and reporting. Additionally, the integrated platform enables back-office and risk information, such as credit, funding and other value adjustments, to be made available to the trading department to compute the true cost of trading, rationalise trading decisions and improve overall profitability,” says El Harit.

Murex has been investing heavily to ensure its platform and people not only support its clients through the Ibor transition, but even help them develop a competitive edge in the process.

“Back in early 2018, our teams launched an extensive impact analysis of the Ibor discontinuation on our customers’ business processes – from trading analytics and P&L control to risk, accounting and operations. This effort allowed us to build the capabilities required for a continuous delivery of innovative solutions to our customers through software enhancements, services and pre-packaged configurations,” says El Harit.

Murex is packaging the new pricing curves and market conventions for the new regional risk-free rate benchmarks, such as Singapore Overnight Rate (SOR), Thai Overnight Repurchase Rate and Hong Kong Interbank Offered Rate, and developing transition mechanisms for local FX-implied benchmarks derived from US dollar Libor such as SOR, the Thai THBFIX and Indian Mifor.

“We believe our clients have a clear advantage in this context as they can rely on Murex’s early investments to benefit from a swift delivery of our multi-faceted Ibor discontinuation package,” says El Harit.

As evidence, he cites recent developments in SORA trading in Singapore, as well as Thailand’s KBank successfully completing the first overnight indexed swap derivatives transaction based on THOR, the new Thai reference rate, on August 31 using MX.3.

In terms of digitalisation, banks in Malaysia and Thailand in particular are focused on extending their digital reach to customers, either through distribution of prices to sales branches, or through direct-to-customer platforms. “Our clients are reaching out to us to leverage the analytical and operational excellence of MX.3 by adopting our digitalisation capabilities on pricing, quoting and negotiation, among others,” says El Harit.

One Asia Risk judge said: “MX.3 offers full front-to-back capabilities and coverage of all asset classes and products. Murex has a good strategy for Libor reform and shows a clear understanding of how it impacts clients. The company has extensive client coverage in Apac region.”