By Boris Agranovich
With tons of speculation about the future of the OTC derivatives market and the need for financial reform and increased transparency, market practitioners are a great source for comments on the evolution of the market, how regulation will affect the market and what challenges reform will bring to financial institutions.
Recently we conducted an interview with Mr. Rohan Douglas, the CEO of Quantifi, a provider of valuation and risk management tools to the buy and sell-side.
1. Could you please briefly describe your career, especially in risk management? What is the role of your company, Quantifi, in the market place?
I started my career working for a primary bond market dealer in Australia in 1983. I joined Salomon Brothers which became part of Citi in 1990 and worked in Fulcrum and arbitrage research before running global credit derivatives and emerging markets trading research.
I founded Quantifi in 2002 with the goal to provide the same kind of advanced analytics, pricing and risk management tools used by the most sophisticated banks to the many new participants entering the OTC markets at that time. Our first products were Quantifi Toolkit (an analytics library) and Quantifi XL (XL add-ins). We introduced our trading and risk management system (Quantifi Risk) in 2005 and our counterparty solution (Quantifi Counterparty Risk) in 2010.
Since 2002, Quantifi has grown to become a leading provider of analytics, trading and risk management software for the global OTC Markets. We have a broad range of integrated pre-trade and post-trade analysis, pricing, structuring and risk management solutions, designed to enable top-tier financial institutions to better value, trade and risk manage a broad range of derivatives instruments. Our solutions allow clients to rapidly and accurately manage their exposures and respond more effectively to changing market conditions.
Our clients include many of the world’s most sophisticated financial firms including 5 of the 6 largest global banks, 2 of the 3 largest asset managers, leading hedge funds, insurance companies and other financial institutions.
2. What will be the impact of Basel III on OTC derivatives market and how will it change the landscape in the financial world in the years to come?
Basel III is set to have a profound impact on the OTC derivatives market in almost every aspect of operations and technology. Not only will it force many banks to transform their business models, it will also require them to undertake significant process and system changes. Some of the key impacts:
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New minimum capital rations will drive new methods of measuring and allocating capital as banks will be required to hold more capital and higher quality of capital to cover Credit Value Adjustment risk. There is therefore even more incentives for banks to implement CVA desks - however, there are major operational and practical challenges in setting up a CVA desk.
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The introduction of central clearing will have immediate and longer term impacts as it will require significant operational and system changes for post-trade operational processes
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Increased regulatory reporting will require significant reworking of legacy risk management systems to accommodate for further data requirements, new calculations to report and increased frequency and turnaround times.
Read entire interview at Global Risk Community