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Betting on the future - Five fintechs making a mark in derivatives markets

Success stories from FIA's first-ever showcase for startups

5 November 2020

By

FIA Innovators
Class of 2015
  • Aesthetic Integration
  • Airex
  • Allocated Bullion Solutions
  • Ascent Technologies
  • Cassini Systems
  • CloudMargin
  • Decryptex Financial Laboratories
  • Direct Match
  • Duco
  • EESAT
  • Global Markets Exchange Group
  • Green Key Technologies
  • GX2 Systems
  • Metamako
  • Narrative Science
  • Neurensic
  • Ogg Trading, LLC
  • TickSmith Corp.
  • Tradelegs LLC
  • untapt

Five years can be an eternity in the life of a startup. And as FIA's Innovators Pavilion celebrates another year of showcasing the next generation of technological solutions for the derivatives industry, it is worth looking back at the first class of FIA Innovators five years ago to see how the fintech landscape has evolved in the intervening years.

In 2015, FIA welcomed 20 companies to its first-ever showcase for fintech startups. The group featured a wide array of offerings, from artificial intelligence technologies designed to improve trade processing and surveillance, to big data solutions that help brokers and trading firms manage data more efficiently, to back-end tools for traders and IT professionals that simply make markets easier to navigate.

Not all of them survived. Some were unable to gain traction and ceased operations. Others were acquired or restructured. But the following five stand out for their success in turning an innovative idea into reality.

Ascent Technologies

Ascent Technologies was founded in 2015 to help derivatives firms and other financial institutions determine their regulatory obligations and keep pace with regulatory change — more efficiently, more accurately, and at lower cost. As regulators and lawmakers around the globe embarked on a massive program of regulatory reform that created new frictions for the derivatives industry, Ascent dedicated itself to the idea that technology can ease regulatory burdens.

"By and large, derivatives firms and other financial institutions are trying their best to be in compliance, but it is incredibly difficult," said Brian Clark, Ascent's CEO. Not only must they decipher actual obligations amid "oceans of regulatory text," the rapid pace of change means tomorrow's requirements could be significantly different, and keeping these obligations up-to-date in one place is a huge pain point for many in the market. The result is increased regulatory risk and rising odds of missing a compliance requirement.

Ascent was built specifically to address this challenge, using machine learning and natural language processing to break down regulatory text into what Clark calls "granular obligations" – precise, individual acts imposed on the firm, detailed down to the line level of regulation. Ascent's technology then maps these requirements to an organization based on its specific operations, and continues to monitor future changes to update the firm’s obligations accordingly.

The goal is simple: save market participants time and money, reduce their regulatory and reputational risk, and keep them from getting fined. Ascent saves customers save 99%+ of their time per regulation in getting to their obligations, and with greater accuracy.

In the five years since the Chicago-based company was featured in FIA's Innovators Pavilion, it has expanded and enhanced its platform. It also has won the confidence of major investors, including a $19.3 million Series B funding round in 2019 led by Drive Capital, with additional investments from ING, Wells Fargo, and Alsop Louie.

Ascent continues to evolve as it looks to the future, including a recent upgrade of its user interface as well as integration with IBM OpenPages that allows customers to feed regulatory data from Ascent directly into IBM’s GRC (governance, risk, and compliance) platform. And with a flurry of pandemic-related regulatory changes in 2020, many firms are relying on Ascent to help them navigate the current environment by both generating their obligations and keeping them updated as rules change.

"Ascent was founded in response to the 2008 global financial crisis to allow our customers to fully understand their regulatory obligations and risk at a fraction of the time and cost. As a result, we fully understand the uncertainty and fear that our customers might be feeling right now. Ascent exists to alleviate that uncertainty, providing complete transparency into each and every regulatory compliance obligation and risk," Clark said.

Cassini Systems

After this year's extreme volatility in margin requirements, the value of a firm like Cassini Systems should be crystal clear. This London-based technology firm offers collateral and margin analytics for both cleared and uncleared derivatives. The goal is to give firms transparency on what is driving margin in their portfolio so that they can optimize trading decisions, forecast their future margin requirements, and minimize collateral funding costs.

Though founded in 2014, just a year before the first FIA Innovators Pavilion, Cassini has quickly proven itself an important part of the global cleared derivatives ecosystem. Though the initial business focused on cleared OTC interest rate derivatives in response to mandatory clearing requirements, the platform has expanded steadily and now offers analytics for derivatives across 90 exchanges worldwide.

"The focus of our clients and prospects is spread across the full range of assets," said Cassini founder and CEO Liam Huxley. "We have some clients who only use us for futures and options, others who only use us for bilateral and cleared OTC."

Cassini also has pushed hard to integrate its solutions in multiple order management, execution and collateral platforms. This year the company has partnered with AcadiaSoft, IHS Markit and Singapore Exchange, further extending the reach of its services.

Amid the focus on margin requirements in 2020, Cassini has seen increased attention from participants in exchange traded derivatives markets, said Huxley. He noted particular interest in fungible trade analysis -- that is, "finding equivalent trades on other exchanges that can produce margin offsets while maintaining the same risk profile."

Looking forward, Huxley said Cassini is expanding into the repo markets "to bring our collateral cost management into the full set of funding tools," and extending its customer outreach in the hedge fund and prime brokerage arenas. Cassini also is planning a new user interface that will allow better access to front office tools.

 CloudMargin

The pandemic has created market volatility and with that a greater need for effective collateral management and automation and security of the process. One firm that has seen demand for its services grow during the crisis is CloudMargin.

The London-based company was founded in 2014 with the aim of bringing operational and cost efficiencies to collateral management. Thanks to its use of cloud technology, CloudMargin bypasses many of the shortfalls of legacy, on-premise software, enabling clients to quickly implement and access its secure collateral management platform for all asset classes and dealer data. Workflow steps are available in one place and users can fully automate or create checks across the process.

"Centralization and automation give control back to teams at a firm-wide level. With full visibility into the collateral management process and data across the enterprise, firms have the ability to be more efficient with their collateral," said Stuart Connolly, a former managing director at Goldman Sachs who joined the company in 2019 as CEO.

"CloudMargin has been sought after to provide that secure opportunity for firms to get up and running quickly and to put risk management practices in place across collateral and exposure. On a long-term basis, given the impact of COVID-19 beyond market volatility, we are seeing more interest and priority among firms to transform their tech stack to a cloud/agile environment," he added.

Underscoring the strength of its business model, CloudMargin closed a $15 million investment round in September this year with three major financial institutions – Deutsche Börse and existing clients Deutsche Bank and Citi.

"These institutions, which have a deep understanding of collateral management challenges the industry is facing, now have an important voice on our board," said Connolly. "The investment will help CloudMargin execute our strategy from a product, people and regional standpoint. Our vision is to solve the true tail of manual process still occurring in the industry by building a networked platform as a single central point."

The company plans to invest the new funds in research and development and in scalability, as well as expand its footprint in the US and Asia with additional sales and client services resources.

Other important milestones for CloudMargin have been the partnerships it has developed in the industry. For example, in July 2019 it announced a strategic partnership with AcadiaSoft, a provider of risk and collateral management services for the non-cleared derivatives community. This allowed AcadiaSoft to integrate CloudMargin’s service into its core platform, thus establishing an end-to-end solution addressing all agreement, margin call reconciliation and collateral processing needs in one place.

"The partnership with AcadiaSoft gives us the ability to provide a seamless workflow across messaging to settlement and the only one-stop-shop for Uncleared Margin Rules (UMR) compliance," Connolly said.

Last month, CloudMargin announced a partnership with global fintech firm Finastra to deliver an integrated collateral and margin management solution, a move that will likely further expand its global reach.

"There has been a lot of automation and efficiency created in the industry, but this has a tendency to trail off at the post-trade level. CloudMargin is all about trying to create more of that efficiency in the collateral lifecycle, taking out risk wherever possible. Modern technology and SaaS [software-as-a-service] have democratized the cost of this process as well as the access," Connolly said.

Duco 

One of the core values of Duco, a provider of cloud-based data integrity and reconciliation services,  is "keep it  simple." In an industry where technology vendors  typically  vie  with each other on feature complexity, this strategy has worked remarkably well. 

Since featuring in the Innovators Pavilion in 2015, London-based Duco has closed a $28 million funding round, expanded its presence to Edinburgh, New York, Singapore and Wroclaw, and grown to more than 120 employees globally.

It has  also  seen its  reconciliation  system  adopted  as a global, enterprise-wide solution by an enviable list of major  financial institutions.  Around 100 financial firms, including 14 of the top 30 global banks,  use Duco's services as well as more than 600 indirect clients through Duco’s partner ecosystem.  

Founded in  2010  by  CEO Christian  Nentwich,  a computer science postgraduate from University College London, Duco  helps to  automate and  improve the efficiency of middle- and back-office processes with its software-as-a-service solution.

Its  technology  allows  banks, brokers, asset managers and exchanges to  normalize, validate and reconcile any type of data in Duco’s cloud.  Given how much manual work still exists in the back office, a self-service model of reconciliation with no requirement to install software offers relief from additional workload at a time when the strain is showing.  

For Duco, ease of adoption is a priority. "In financial services there aren't many systems you can just switch on in 24 hours and start using within a week or two. Simplicity is always our top goal,"  said Nentwich. 

In 2018,  Duco  completed an investment round led  by  Insight Venture Partners, Eight Roads Ventures  and  NEX  Opportunities. The round also included  an investment  from  former CEO of SunGard, Cristóbal Conde.  A large part of this  cash infusion  has gone  on supporting the company's product and market expansion. 

Earlier this year, the company launched Duco Alpha,  an advanced machine learning platform fully integrated in the Duco service. The new functionality recognizes the root cause of common exceptions, predicts resolution times,  and suggests resolution actions.  According to Nentwich, Duco Alpha has saved clients 3,000 hours of work since March 2020. 

Like  many  other providers of cloud-based  services, Duco has seen an increase in new business since the coronavirus-induced lockdowns in March this year. The "new normal" of work-from-home has  shone a harsh light on operational data tasks that rely on manual work, legacy technology and on-premise installations.  

"Like everyone else, we were preparing for the worst in March, but then our April  to  June quarter set an all-time sales record with many new firms signing up rather than existing customers paying more," Nentwich said.  

"In the work-from-home scenario, cloud wins. Self-service wins. Long project and old school installed software loses. Also, since Duco often replaces Excel-based processes, we hit one of the core operational risk pain points when staff are sitting at home: keeping controls running and auditable," he said. 

The company is now executing on product plans outside the traditional data integrity/reconciliation space, although details are under wraps currently.  

 TickSmith

According to Francis Wenzel, CEO of TickSmith, a provider of big data applications for capital markets, there are estimates that 90% of the data in the world today has been created in the last two years.

That rings true in the financial industry, which has always been a voracious consumer of data – whether that is traditional forms of market data or new types of alternative data from non-financial sources.

TickSmith addresses the growing need of exchanges, banks and buy-side institutions to explore and unlock value from the large and growing amount of data available in the world today.

"TickSmith helps clients by giving them a platform that makes it simple for them to manage data at scale, and also makes it simple to add content, package it, monetize it, distribute it and connect it to applications," said Wenzel.

The Montreal-based company was founded in 2012 with the aim of transforming how organizations consume and distribute data by removing the complexities of traditional data management infrastructure.

The company's flagship GOLD (Gather-Organize-Leverage-Distribute) service is a modular end-to-end data management platform built on open-source technologies and optimized to run on the Amazon Web Services cloud. In fact, the company has been certified by AWS as one of its technology partners, making it easier for banks that use AWS to onboard its data platform.

GOLD securely pools, validates, and cleans data regardless of format, source and size. It structures and tags data into a customized catalog to simplify discovery and delivers data to users and systems with governance and control, meaning clients can devote more time on higher-value tasks such as interpreting and analyzing data.

Since featuring in the Innovators Pavilion in 2015, TickSmith has secured several high-profile client wins, including the National Bank of Canada, which deployed TickSmith's data management platform to support its global equity derivatives group. TickSmith also was brought in by CME Group to power its DataMine historical data portal, making all the data created by CME's markets, together with alternative data from third-party firms, more easily accessible.

Other clients have found TickSmith's technology to be an effective way to back-test their risk models on historical data, as well as improve their best execution and transaction cost analysis. That type of analysis depends on having the ability to ingest large amounts of financial data, consolidate the data in one place, and perform the analytics in close to real-time.

As TickSmith has continued to grow, it has succeeded in raising funding from venture capital firms such as Illuminate Financial Management. The London-based firm, which specializes in capital markets fintech, made an investment of CAD $2 million in TickSmith in 2017 that enabled it to accelerate the commercialization of its business and expand its presence in London and New York.

"Consolidating high quality data and making it easily accessible is crucial throughout the whole trade lifecycle," Mark Beeston, a managing partner at Illuminate, said when the investment was announced. "TickSmith is at the forefront of this trend and is a vital piece of a next-generation, highly scalable and modular financial infrastructure, built on big data technology."

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