Securities Industry Outlook 2009
Volatility and Data Demands Driving Options Tech | Niche Opportunities in Global Crisis | Spending Cuts Could Spare Execution, Order Management Systems | For Centralized CDS Clearing, More May Not Be Merrier
Niche Opportunities in Global Crisis
From U.S. to Asia, vendors are responding to a rapidly changing landscape
January 5, 2009
As financial firms across the globe cut back on spending, postpone projects and weigh the need for certain cutting-edge solutions, few technology providers have been left unscathed. "Nobody is talking about what they can buy," says TowerGroup analyst Robert Hegarty. "Nobody is saying, 'We have to get this technology in the door.' It's a bunker environment the likes of which I've never seen."
But even as banks and brokers tighten their belts, the credit crisis has put a spotlight on several opportunities, and creative vendors are taking advantage. Products that address difficulties in pricing complex securities are one such area, says Peter Farley, a London-based analyst at Financial Insights.
In fact, adds Hegarty, if a company's offerings help firms save money, rationalize technology or remove large IT costs, there is room for growth despite the environment.
In July, New York-based Vichara Technologies began offering a valuation and risk measurement product for various loan types, including adjustable-rate mortgages. Two months earlier, the company, founded in 2001, began offering loan-level analytics for collateralized debt obligations and mortgage-backed securities. "Vichara is really targeting asset managers who are looking for distressed assets specifically in the mortgage area," says John Jay, analyst for Boston-based Aite Group.
Vichara, which counts UBS, Nomura Securities and Bank of America among its clients, is restructuring its core business around needs exposed by the financial crisis. "They are trying to put together a method or process so that the analysis of distressed assets is not patchwork," says Jay. Buy-side firms often use multiple sources of information, meaning that reports may not be timely or consistent. Vichara, says Jay, is "trying to streamline the gathering of information, and integrating it into the analytical part of looking at distressed mortgages and valuing them."
Scottsdale, Ariz.-based Response Analytics is offering something similar to distressed assets investors. In October, the nine-year-old company introduced a distressed portfolio management solution designed to assist with changing mark-to-market asset valuations to hold-to-maturity prices. "Both Vichara and Response are loan-level and detailed," which is important, notes Jay, "because mortgages have a number of dimensions in which they can be described." To get an accurate view of the underlying risk, "you have to look at the loan in detail."
Openings in Japan
Younger, more nimble companies have certain advantages over their larger competitors, says Jay. The Japanese research market, for example, has long been dominated by big domestic vendors, such as Nomura Research Institute and Daiwa Institute of Research, but the financial crisis has drawn attention to their limitations, creating a possible point of entry for others.
In Japan, "there has been a growing need for independent research, and that can be provided by small research houses," says Neil Katkov, Celent's Tokyo-based head of Asia research. "The research from the major securities firms doesn't always provide information and analysis that the buy-side clients want."
Hit hard by the credit crisis, Japan officially entered a recession in November. Tokyo-based New City Residence Investment Corp. in October asked for bankruptcy protection-the first Japanese real estate investment fund to do so. Two-year-old Corerating Co. of Tokyo is seeking to prevent further collapses by offering a rating service that president Seiichirou Yasuzawa says helps local financial institutions and real estate funds determine the fair market value of real estate.
