OTC derivatives workflow solutions a huge opportunity, OTCX

The financial industry is not always the quickest to catch up to and adapt new technology to its services, but the current 'old school' state of the over-the-counter (OTC) derivatives market is as much a detriment to the industry as it is an opportunity for the fintech sector, according to London-based workflow and technology solutions provider OTCX.

"Looking at the current landscape of how people communicate with counterparties, it is fascinating that there is such a huge dependency on voice, chat and email, particularly in the derivatives and structured products world," said Nicolas Koechlin (pictured), founder and chief executive of OTCX, adding that a single deal could take up to 50 emails, according to one of their clients. "New technology today can provide structured audit trails that are retrievable on demand, instead of a long list of email folders, spreadsheets and chat archives."

OTCX has developed a platform-based workflow solution that not only increases liquidity, but also streamline the process and record-keeping in the OTC space. The company has adapted that platform to include structured products in a separate module, where product types from warrants to autocallables and reverse convertibles, as well as everything in between can be quoted, negotiated, traded and enjoy post-trade support in a single cloud-based and fully digitalised process.

OTCX's solution brings together the entire request-for-quote (RFQ) process and the associated documentation from auction and indicative pricing through term sheets to dealable prices and instruction workflows. OTCX can also store regulatory documentation including target market analysis and Key investor information documents (KIIDs) against deals so all information is stored in one place.

In particular, with the onset of Markets in Financial Instruments Directive (Mifid 2), everyone has to evidence their trades, so a workflow solution would soon become a necessity rather than a convenience, said Koechlin. "One of our first structured products buyside clients was not so worried about gaining access to liquidity, as to being able to evidence their trading actions on demand," he said, adding that fintech is one of the key things supporting the structured products industry - and the OTC space - as Europe stands at a regulatory crossroads.

Most of OTCX's current structured products clients are Tier 1 private banks in London and continental Europe, he said, noting that they are attracted by a complete browser-based experience which brings simple functionality, ease of on-boarding and minimal tech footprint. "We have a large panel of issuers on the platform, with new ones being added regularly," Koechlin said. "The majority of clients do a lot of flow products and autocalls, but payoff types go all the way through to more complex structures."

OTCX aims to help all current and future clients trade all types of OTC derivatives efficiently, including equity derivatives and interest rate derivatives, as well as liability-driven strategy instruments like investment swaps, zero-coupon swaps and emerging market currency swaps. "We are looking at all products where there are currently no platforms, and therefore require manual processes like chat and email," Koechlin said.

Going forward, OTCX is looking at rolling out its structured products module across Europe, with overseas plans before year end. OTCX will extend the platform to brokers and anyone else who needs a workflow solution, but is also eyeing a huge opportunity in the interest rate derivatives space, where 80% of trades are negotiated on chat, Koechlin said. "We are positioning ourselves to offer digital workflow solutions that are Mifid 2-compliant in terms of evidencing Best Execution, for the buy side across instruments that are overlooked by current offerings - inflation swaps, cross currency swaps, emerging market currency swaps, packages and many more."

Earlier this month, OTCX announced a partnership with SimCorp whereby the latter's clients will gain direct access to OTCX's Request For Quote (RFQ) platform which will be integrated into SimCorp's core investment system, providing the buy side 'extensive access to a wide network of OTC liquidity providers in one seamless workflow'.

The integration will relieve dependence on manual processes, such as reconciling chat, voice, and email data, while also providing major benefits with regard to Mifid 2 compliance, a press release read.

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