New York-based RiskMetrics Group and Utah-based Theoretics have inked a co-marketing agreement to connect Theoretics' Telemark computer trading system with RiskMetrics' RiskManager software.
RiskMetrics will integrate Theoretics' pricing and portfolio analytics, including stress testing for all fixed-income and equity instruments, into its risk analytics system. It will cover all areas of pricing and risk management in fixed income and equities.
Blaise Labriola, founder of Theoretics, said that the new system will help clients -- traders and risk managers -- identify risks and figure out where they are. In the municipal arena, the system will be able to provide data and risk management analysis on all types of municipal bonds and derivatives, including callable, puttable, and structured derivatives.
The system also tracks the spreads on securities and indicates if they are wide or close. The system is also able to structure muni synthetic derivatives, using The Bond Market Association curve, against any other municipal security in the market, Labriola said.
A function of the Theoretics trading system, which manages software that is able to provide pricing on securities, exports the user's positions to the RiskMetrics system, which allows it to provide risk-mitigation information to the client. Labriola said that the market is fragmented, as most competitors offer pricing information, but not a comprehensive risk-management system. The interaction of the platforms fills that void in the market, he said. A small number of players may offer both types of software, but on a very limited scale, he noted. Competitors include Bloomberg LP, Salomon Analytics' Yield Book, and Barra.
Stephen Harvey, global head of sales and marketing at RiskMetrics, said that both firms were prompted to combine their systems because of a trend among some of the regional banks and hedge funds to use a one-stop shop. Clients have indicated that they want trading and risk as an integrated system, he noted. As a result, the melding of the platforms is a culmination of the companies' efforts to meet clients' requests.
The companies, which launched the combined system in mid-October, rent the software to its clients through an annual license. Harvey said that this allows the clients to renew or withdraw at the end of the contract. This is different from many of its competitors, which sell their software to clients, he added.
The new product will be marketed to banks, hedge funds, corporations, broker-dealers, and mutual funds worldwide. Harvey noted that 40% of RiskMetric's clients are commercial banks, 10% are investment banks, 10% are asset managers, 5% to 6% are insurance companies, 10% are alternatives, which include hedge funds and other funds ,while another 7% to 8% comprise central banks.
Columbus, Ohio-based Huntington National Bank currently uses the Theoretics system in its trading and portfolio management areas for all fixed income-derivative pricing and portfolio analysis. "The system has tremendous flexibility and is fairly easy to use," said Robert Harless, senior vice president of Huntington's capital markets division, in a prepared statement. The RiskMetrics system, when linked to the Theoretics platform, will handle the additional credit and market risk analytics of Huntington's portfolio.
