Volatilities Drive SuperD Growth

UK-based options pricing and risk management software vendor SuperDerivatives is planning a major expansion of its market data division as a result of business growth, and partly as a result of increased demand for data from the Asia markets.

SuperDerivatives' market data division was set up around two years ago to collect hard-to-source data required for options pricing, such as volatilities that—unlike underlying price data—are not readily available via data vendor feeds, chief executive David Gershon tells Inside Market Data.

One of the vendor's biggest areas is the portfolio revaluation services that it provides to banks, fund managers and custodians. Gershon says that while the trader who executes a trade will be able to get a sense of volatility from market activity, those back-office staff performing valuations don't have that advantage.

In addition, he says, "the Asian market is growing very fast… so the challenge is obtaining accurate volatilities for products that are not very liquid in the commodities, energy, equity and interest rate markets."

However, without real-time sources of volatility data, the vendor has to call specialist brokers to obtain volatility values and input that data manually into SuperDerivatives' pricing models. But with a small data team, "we realized that with our client base growing and the need for new products also growing, supporting the need for market prices would become impossible," Gershon says.

To grow the unit, the vendor hired former Reuters executive Bonnie Eshel this summer (IMD, Sept. 18), who has already begun working on "many initiatives to increase the sources of market data for those products," Gershon says. This, he says, will involve identifying the key traders of specific products, and expanding the number of brokers and market makers from whom SuperDerivatives obtains values. It will also involve Eshel increasing the data team from around six staff to around 20. "To handle so many products, you need many people," he says.

But Gershon says that although the vendor will be sourcing more important data, it will for the foreseeable future only provide it within SuperDerivatives' products and services, rather than making that data available separately for firms to use in their own models and applications. "Right now, our business is not selling data; our business is selling pricing and analytic systems, and revaluation and risk management services," he says.

Max Bowie