Since being acquired by Ion Group, List, a Pisa, Italy-based trading platform provider, has been working on integrating its products and technology with other tools under the Ion umbrella, enabling it to extend its coverage across asset classes.

One area List had its eye on in the past was in over-the-counter (OTC) derivatives, but due to the company’s size and stature, it just didn’t have the capability to extend its services into that particular market. Then Ion stepped in.

“We’ve always wanted to extend the Janus [risk management platform] to go into more OTC, centrally-cleared derivatives, but we never had the bandwidth to do that because, being a relatively small company, we had to focus and give priority to certain things,” says Mirko Marcadella, chief product and marketing officer at List. “Now being part of Ion enables us to extend the system and to accelerate in this direction.”

When their current integrations are completed, List’s products look to be moving towards providing a ‘one-stop shopping’ option with all these tools integrated in one box, on a platform that can support massive calculation requirements. This product model will be very attractive to many Tier-1 and Tier-2 banks

Steven McCaffrey, Proviniti

List is now working with Clarus Financial Technology, which was also acquired by Ion last year, to integrate its solutions and provide a broader offering to clients.

Clarus, a derivatives analytics and data provider, has an OTC risk management system called Charm, which according to Marcadella, does similar things to List’s Janus suite of products.

List is using APIs to first make the two systems interoperable, and then consolidated within a single interface. The user will see their data within Janus, whether it’s for exchange-traded or OTC derivatives. “But when it comes to margin calculations specific for OTC, the engine behind the calculation is Clarus,” he says.

The Janus suite includes the Janus Risk Manager, Janus Margin Engine, Janus Central Limit, and Janus Behavioral Analytics, which assist firms in monitoring and controlling risk in real-time across multiple assets and markets.

Steven McCaffrey, managing partner at IT consultancy firm Proviniti, says List’s platform, when fully integrated, will expand Ion’s capabilities for managing complex OTC derivatives—a product class that is extremely difficult to build and maintain in-house.

“As OTC derivatives become more and more creative and complex, it can become cost prohibitive for many market participants to keep up with the ever-expanding technology requirements to support these instruments,” he says.

He adds that these risk calculations often require millions of calculations to support the ability to apply or model multiple scenario types to reach a consensus on the value and risk of a future OTC derivative cashflow.

Provided the integration plans go smoothly, the ability to support OTC derivative risk modeling and computing capabilities coupled with a flexible product risk modeling toolset may be attractive to a wide array of sell-side firms as they continue to cut costs.

Managing risk limits has also been a challenge for firms. McCaffrey notes that proper limit management requires tight integration with future risk calculations and a detailed ability to apply ‘what if’ scenarios for traders quickly.

“When their current integrations are completed, List’s products look to be moving towards providing a ‘one-stop shopping’ option with all these tools integrated in one box, on a platform that can support massive calculation requirements. This product model will be very attractive to many Tier-1 and Tier-2 banks who may be thinking of outsourcing their current in-house OTC derivatives computing efforts,” he adds.

Changing views

Marcadella explains that firms want a more holistic and real-time view of risk across their trading platforms and business or asset class siloes. The existing challenge is that risk management is segregated across trading platforms and different asset classes.

“For example, from a broker’s perspective, you’re dealing with the client on different asset classes. The clients are doing business with me on OTC, on exchange-traded derivatives, maybe on fixed income, or on equities, too. If I look at my risk with that client, I have to look more holistically and put everything together,” he says.

Not only are risks segregated, but insights are gleaned usually on a T+1 basis, rather than intraday or real-time, often leading to decision-making based on outdated information.

“With Janus, we want to cover the gap between having a lot of different trading platforms where you have risk management, but it’s limited to that particular portion of trading on that trading platform,” he says.

Although the OTC business is different from exchange-traded derivatives, which is based on algos slicing and dicing thousands of orders and trades, Marcadella says these two businesses compete on the same collateral and liquidity posted by clients with the central counterparty, so having a single place to see this could make the process of using collateral more efficient.

Apart from the Clarus and Janus integration work, Marcadella says List is also integrating the Janus Central Limit system with Ion’s GTP execution and order management system.

This integration will allow limit changes—once approved—to be pushed into GTP automatically.

Marcadella believes some of the easier integrations could be completed as soon as year-end, while others, like the Clarus and Janus integration, will be finalized closer to mid-2023.

Proviniti’s McCaffrey says these integrations, once complete, will give Ion a much deeper set of tools to offer clients, especially in the OTC derivatives area. However, the challenge of integrating these products is “enormous.”

“They generally have different data structures, use market data differently, may have different user experiences and may use different computing platforms, and most of all, they are just generally very complex,” he says. “All of these items need to be normalized to create a branded product set with a common look and feel and a great user experience. Keeping the legacy products for legacy customers happy and unaffected is also extremely difficult.”