Xenomorph Aims For Consistency With Instrument Risk System

LONDON--UK financial software company Xenomorph this month introduced an instrument risk system designed to reduce risk caused by time lags in disparate pricing services' updates.

The Xenomorph Instrument Risk System (XIRS) normalizes data received from real-time feeds so that models used for trading in equity, bond, interest-rate and commodity options and futures receive updates in a consistent manner. Inconsistent delivery of information from various data sources -- such as Reuters and Bloomberg -- can disrupt pricing systems for over-the-counter instruments, resulting in missed opportunities and even losses.

Xenomorph managing director Brian Sentance says firms have typically solved this problem by developing in-house systems, often with the help of market data platform providers like Tibco, a subsidiary of Reuters. But, he says, the problem runs deeper than mere technology: there is also a procedural problem.

"Traders want to trade the latest derivatives because the margins are higher on new products," he says. "But risk managers won't allow this until the product is in the risk systems. This, in turn, puts pressure on IT [staff] who have no idea what the product is."

Sentance says the Xenomorph system has been in beta tests with three European-based hedged funds and one large European insurance company since mid-summer. He declines to identify the beta-site customers, but says they have reacted positively and helped with development of the system.

Sentance says customers can adjust XIRS programs to their own requirements using Microsoft Excel, or the Visual Basic, C and C++ programming languages.

By using XIRS traders, risk managers and IT people can, for instance, identify a security through its RIC (Reuters Instrument Code) and price an option or future based on it without necessarily having to know anything about the model used, he says. Dates can be specified and yield curves generated automatically.

Meanwhile, Sentance says Xenomorph plans a February or March launch date for its Xenomorph Trading System, the next stage in its "layer-upon-layer" approach to product development.