Derivitec: Pay-as-you-go equity derivatives analytics
Derivitec is a London-based financial technology start-up that was founded in 2011 by George Kaye, a quantitative analyst with over a decade of experience in equity derivatives at Credit Suisse, Goldman Sachs and UBS.
Kaye (centre), who holds a PhD in theoretical physics from the University of Cambridge, is Derivitec’s chief executive. He works with Marc Tuckmantel (left), head of equities product development, and Mattias Altin (right), chief technology officer.
Tuckmantel joined the start-up from Goldman Sachs, where he worked as a front office strategist on the equities derivatives desk in London, while Altin was formerly chief technology officer for Schroders NewFinance Capital.
They are based in Level39, Canary Wharf Group’s technology accelerator in One Canada Square.
Alright. So what do they do? Derivitec provides equity derivatives analytics to firms in both the buyside and the sellside via the cloud — so via the internet. It offers all of the data and computer power needed for real time risk and portfolio management, and works as an on-demand platform. You pay as you go.
This means that if you are a single trader managing a small portfolio of derivatives from your garage, or if you are one of many traders at a large fund managing a very big portfolio, you get the same quality of analytics and market data but you are charged according to usage. Hold on one second. What is cloud computing again? Cloud services give users access to a shared pool of technology resources over the internet. These resources include hardware, like storage space, or software like email applications. If the photos you take on your iPhone automatically appear on your iPad then you’ve used the cloud. The same goes with Gmail.
In this case, instead of taking days (and lots of money) to install an application on client’s computers, Derivitec gives traders access to its analytics via the internet. The start-up, which currently allows users to download a desktop program, will soon launch a web-based application. This will mean that a trader will be able to open a web browser, register and log on-to Derivitec’s portal and do all of the complicated calculations and risk modelling he needs. They’ll be charged based on how much he has used.
Kaye says: “At the moment we focus on equity derivatives because that is actually our skill set, we would like over the next five years certainly to be able to cover all the major asset classes FX, commodities, credit, interest rates.”
So what problem are they trying to solve? Following the crisis regulators have become a lot stricter with financial services firms on how they manage their risk. This has meant that funds and brokers need to ensure their analytics tools are top-notch and are up to the task.
At the same time, the crisis has also meant the sector is trying to get a lot more value on each IT dollar it spends. Derivitec gives access to sophisticated analytics, but also aims to lowers the cost. Users only pay what they are actually consuming, instead of locking into annual agreements for a tool they might only use less than once a month.
There are also no upfront costs because nothing needs to be installed on the client’s systems, and Derivitec will take care of maintaining the application and all of its data. No need to worry about upgrades.
Is there a big picture here? Yes there is. Until recently, firms in capital markets had not been very keen on using cloud technology. But new tools that offer services specifically to financial services firms, like Derivitec’s, are leading to a faster take up by the sector.
The rising popularity of the cloud is also driven by several other factors. It is more cost effective, as you tend to pay for what you use and not for what you think you will need, it doesn’t require big upfront investments to build and maintain expensive technology, and it allows companies to scale up or down very quickly.
Will they be the next multi-billion dollar financial technology company? Kaye said: “Yes. I think fundamentally what it comes down to is that it is obviously the right software for the right problem. You’ve got thousands of funds out there who will be subject to stronger regulatory requirements and they will be wanting to minimise their cost and maximise their flexibility. The cloud based solution is a very natural fit for that.”
Link: Fintech Focus: Derivitec