Investment Banking
Utilizing great technical minds from Eastern Europe and deep knowledge of financial industry from Wall Street veterans, we are able to offer superb financial application development. Below is a list of specific areas where we have built expertise and offer a solution for your company.
Key Areas of Financial Expertise:
Luxoft has developed real-time exchange connectivity, market data handlers and analytics for a major investment bank. All of the orders can be entered either using the manual interface or the FIX engine. Outgoing orders are sent using either FIX or a proprietary standard of the Exchange. The system is able to receive executions and fills and update all positions within the system.
Luxoft has also developed a Position Monitoring system for a major investment bank. All multi-asset class positions (equities, derivatives, commodities, indexes, FX) are tracked in real-time, their P&L and risk exposure being recalculated with every price change. All of the trade history is being stored in a database and various reports are generated ad-hoc and can be exported into a PDF or an Excel format.
Luxoft serves many large asset management companies and hedge funds. Some of the successful projects in this area included the advanced trade capturing capabilities and routing orders via FIX to ECNs and various broker internal crossing networks, real-time analytics, including arbitrage-finding strategies, generation of execution reports, handling and communicating allocation details.
Luxoft has performed a number of projects related to risk management area covering Credit Risk, Operational Risk, and Market Risk. As a matter of fact, most of our investment banking and investment management projects involve building new or integrating existing risk management frameworks.
In the Credit Risk Management space, Luxoft covered the following aspects:
- Recording and analyzing trade and financial transactional details
- Integrating and utilizing the standard rating methodologies
- Controlling limits set aside by risk managers and internal auditors/compliance officers
- Full support of Basel-II computational requirements
- Complete reporting functionality
In the Operational Risk Management space, Luxoft covered the following aspects:
- 1. Creating new custom risk frameworks
- 2. Connecting to multiple data sources and extraction of data based on the corporate standards
- 3. Application and penetration of company-wide capital and resource requirements
- 4. What-If and Scenarios Analysis
In the Market Risk Management space, Luxoft covered the following aspects:
- 1. Analysis of the characteristics of the financial instrument
- 2. Historical review of price volatility
- 3. Assistance in selecting best hedge instruments
- 4. Cross-positional review of exposure to market risk
One of the projects was to calculate market risk for a portfolio of stock and also for corporate bonds. In the first case, Luxoft has built a Portfolio Beta generation mechanism using linear regression to estimate the volatility of a given portfolio to the volatility of the market. After the Betas were correctly calculated, the Client asked Luxoft to extend this framework to calculate Value-At-Risk and Conditional Value-At-Risk. Luxoft successfully used standard statistical techniques as well as some of the derived optimization and Monte Carlo simulation to assist the customer in correctly identifying the maximum and expected losses of their portfolios. In the latter case, Luxoft has helped the asset management company to build a diversified portfolio based on the analysis of the effects of the bond characteristics such as the length of the maturity, the size of the coupon as well as the corporate actions events.
With the Basel-II advanced credit risk management requirements, Luxoft worked on several projects covering full life cycle from real-time monitoring risk levels and limits to capturing transactional data coming from multiple sources, performing required Basel-II computations and generating reports.
After the landscape of liquidity sources changed dramatically last year, some of Luxoft investment banking clients turned to us with a need to effectively manage liquidity risk. Luxoft has developed a unique framework to quantify the bank’s and its clients’ ability to meet its obligations whenever they are expected to come due. This framework also helped the bank to manage any unplanned changed in various sources of capital funding. The framework and the application developed to use this framework have helped the bank to identify, measure, monitor and control liquidity risk.
Luxoft assisted several investment management companies to build an effective performance attribution model. In these projects, Luxoft created handlers to analyze data from internal and external sources and statistically derived alphas to measure and rank the selection skills of portfolio managers. Based on the required benchmarks that portfolios tend to follow, Luxoft was able to determine and compare the manager’s asset allocation style and to report on the changes in such a style over any given period of time.
Luxoft is successfully working for several years on the development and support of various FIX projects for top tier investment banks and investment management groups.
Specifically, Luxoft developed custom FIX engines to process low latency and high availability transactions supporting cash equities, listed equity derivatives and foreign exchange (spot, forwards, swaps and options) trades. Luxoft has demonstrated excellent business knowledge of the trade communications process as well as the technical strength of its team and became a main player in automating the electronic trading exchange of several message types. The following trade messages and trade flows have been implemented by Luxoft developers:
- 1. Indication of Interest from Brokers/Dealers to Investment Managers
- 2. Orders from Investment Managers to Broker/Dealers and from Broker/Dealers to the Exchanges
- 3. Notice of Execution from Exchanges to Broker/Dealers and from Broker/Dealers to Investment Managers
- 4. Allocations and Settlement Instructions from Investment Manager to Broker/Dealer and Custodians
- 5. Confirmations from Broker/Dealers to Investment Managers
- 6. FIX/FAST market data from Exchanges to Broker/Dealers and Investment Managers
Luxoft has successfully implemented various market data handlers for Bloomberg, Reuters RMDS and DataFeeds, Nasdaq, LSE, OMX, CBOT and many other providers and exchanges. Luxoft can quickly build a proprietary interface or a FIX/FAST –based data connector.
Luxoft has done several projects where we had to develop pricing models. The following two projects related to interest rate derivatives’ pricing have recently been performed for our main investment banking clients.
One of the projects performed by Luxoft was to put together model templates used for pricing and risk management of interest rate derivatives, such as Black, Black-Scholes, Hull-White, Vasicek, Ho-Lee, Black-Derman-Toy and Heath-Jarrow-Morton. These templates provided market standard pricing models used by traders. Additionally, these model templates can be easily customized to create proprietary pricing models. This application, fully developed by Luxoft, also included support for the main pricing model calibration used on the trading desk, Short Rate Calibration. This calibration routine included multi-factor Gaussian models, Monte Carlo simulations as well as the advanced correlations between different parameters used in the interest rate pricing models. We also obtained stochastic volatility for a model. As a result, the models were made consistent with market prices and changes in implied volatility. Furthermore, the application provided for an advanced framework to measure interest rate risk. The products supported by this application included simple interest rate derivatives (options, caps, floors and swaptions) as well as the exotics (barrier caps, average rate caps and index amortizing rate caps).
The other project performed for a top-tier investment bank to write a simple routine to price their plain vanilla (fixed-to-floating) interest rate swap. In this project we had to analyze each leg and calculate its fair present value. Here, in addition to the discount factor provided by the client to calculate the fixed leg (using standard discount bond pricing), we had to derive zero-coupon rates and forward rates from the yield curve that we have built based on the market data for the calculation of the floater. To get the fair value, we would analyze the fixed rate the swap is offered at and the variable rate based on the current forward rates. If there is a discrepancy above a pre-defined threshold, we would suggest an arbitrage opportunity to the traders.
One of the projects for a top tier investment bank was to create a centralized Loan Exposure Management Application. The application was used to reduce loan losses using various hedging strategies and products and to distribute credit risk. Advanced analytics was used to optimize loan and hedge portfolios and to manage the bank’s collateralized loan obligations process.
Another significant project was to create a structuring application for a CDO underwriting group at a major investment bank. The underwriters were using the application to structure debt and equity tranches based on a set of pre-defined parameters. Various quality tests were run against the debt in each category and the optimal mix and its size were recommended to the underwriters.
Luxoft has worked on a number of projects covering both pre-trade and post-trade compliance. On a pre-trade compliance side, Luxoft worked with a major order management system vendor to ensure their system checks various limits and policies set by the administrators to prevent any malicious or accidental trades that violate the company’s internal rules.
Luxoft also worked on a number of projects for a major investment bank where it automated best execution reports, order book trade reports and OTC trade reports and the timely submission of such reports to the right regulatory venues.
Luxoft also helped a major investment bank’s prime brokerage division to improve insight into suspicious behavior of their clients. Luxoft developed the tools needed to manage the workflow of detecting and reporting market manipulations and market abuse, conflict of interest and insider trading as well as the timely trade reporting. The solution developed by Luxoft included screens and logic for alert management, reporting and full audit tracking.
Luxoft developed a new CRM platform and Client Relationship and Deal Management suite of applications for a top tier investment bank. Client Relationship Management Application built entirely by Luxoft is used for all client, contact, deal and call report management within the global front office (over 4,000 front office users worldwide).
Deal Management Application that was also built by Luxoft became the central deal logging and conflict resolution system used by the Investment, Personal and Corporate Banking divisions of the bank.
In most of the instances the companies turn to Luxoft, they have many disconnected systems that participate in the trade origination/trade execution/trade settlement process. However, to execute deals efficiently, the companies realize that the process must be streamlined where the data is passed automatically from one system to the next. Luxoft successfully implemented messaging and transactional systems as well as ETL techniques to quickly convert data from one format to the other and to enrich and forward the data while it travels from one system to the next. A number of safeguard mechanisms are utilized to make sure no data is ever lost.