"Derivatives Trade Is A Fairly Complex And Niche Business"

Derivative trade has gained momentum since it was first launched in 1994 in India. Apart from corporate and financial institutions, a lot of individuals are now understanding and showing interest in derivatives trade. While the derivative market is growing at a rapid pace there are very few Indian companies which provide technological solutions for this extremely complex and niche financial domain.

Pyxis Systems, a Pune based company has been striving to create its dominance in the financial derivatives industry with its industry centric solutions. The company recently launched ionpot.com, a web-based solution for financial derivatives based on its flagship product RisKompass. Nandlal Bhatkar, founder and CEO spoke to Biztech2 about its latest offerings and other issues pertaining to the derivatives industry.

What prompted you to provide derivatives services through a web based solution, as you already have a presence in the market through your software RisKompass?

RisKompass mainly caters to large derivatives players like banks and financial institutions. It can not cater to small players as the kind of investment and number of people required for using RisKompass is huge. Large derivative players mainly use three types of derivatives software, which can be categorised as front office software, mid-office or risk management software and back office software. Each of these softwares which could cost $1 to 5 million are very complex in nature, takes a lot of time in implementation and requires a dedicated team of people. Small derivatives players may not have that many trades, number of people and budget to go for a very expensive system and Ionpot is targeted specifically towards such people.

What are the prominent features of your latest offering Ionpot?

While most of the new developments in the derivatives software market are targeted towards large derivative players, Ionpot comes in aid of the smaller players. Ionpot services are available on a subscription based model. Currently we have priced it between Rs 3.5 lakh to Rs 4 lakh per year per user. Being a web based platform, Ionpot is very easy to use and one just needs to log in the system, like operating any other email account. It provides transparency to the users and an effective mechanism on the web to price derivative deals accurately and independently in much the same way as market makers. In order to get credible data for Ionpot, we have tied up with large international and local brokers as well as banks which will help in bringing the traded market prices directly on to the platform.

What kind of services will be provided by this web portal?

Ionpot allows the user to price, save and mark-to-market various interest rates and Forex derivatives instruments. It will provide several services to the industry such as delayed market prices, details on derivatives programmes, market summary etc. This system will allow the user to capture the trades; will allow him to market it using real time data.

Apart from this, Ionpot houses a portfolio management system (Ionpot PMS) which provides real time pricing and valuation for Interest Rate and Foreign Exchange derivatives. Ionpot is powered by RisKompass and has all the functionalities of the software.

What kind of response has the solution received?

We have got very good response from the market. As of now many people are using it on a trial basis as we have just launched it. Adani Enterprises and Arvind Mills have already signed an agreement with us. We shall be signing 15 to 20 clients in the next month.

What are the major issues and challenges of derivatives software market?

Derivatives trade is a fairly complex and niche business. Several risks associated with this business such as market risk, liquidity risk, operational risk and credit risk, require complex mathematical and calculation tools. A pure IT player may not be able to provide an appropriate solution.

For a bank which may be dealing in foreign exchange, interest rate and credit derivatives, the biggest challenge will be to first identify the right system. A consultant who has been in this business can be very useful while deciding the system requirements. Implementing the system is also an issue. At Pyxis, we have a separate unit which looks after system implementation.

The knowledge both on the bank and corporate side about what derivatives are, how they are priced, how they need to be used etc has to be improved. I think there is a grave need for education and awareness among banks and corporate.