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Q&A with OpenGamma on Risk-Analytics Solutions for Financial Institutions

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Editor’s note: The OpenGamma Platform is a transparent system for real-time risk management and analytics for financial institutions. This interview of chairman and co-founder Kirk Wylie discusses product differentiation, innovation competitive advantages from open source software and upcoming changes in risk-analytics solutions. 

SandHill.com: Please describe your product and how it provides business value for financial companies and their customers. 

Kirk Wylie: Provided under an open source license, the OpenGamma Platform contains tools for pre-trade and “what-if” risk calculations, stress testing and scenario analysis, and risk aggregation across asset classes, strategies and portfolios. 

The clearest business value to our customers is that the platform allows users to gain more insight into their portfolios and enables them to respond faster to changing market conditions. Because of the way it’s been designed, it also allows anyone trading derivatives to unify their calculation of analytics across the traditional trading and risk management boundaries. 

Although our early adopters were hedge funds, the platform is now used or being evaluated by banks, asset managers, market infrastructure providers (like clearinghouses and exchanges) and other market participants. 

SandHill.com: In February Fast Company ranked OpenGamma as one of the most innovative companies in 2013, citing your company’s transparency. How is your product different in this aspect from competitors’ products? 

Kirk Wylie: There’s a very clear difference actually: no other risk management system in this space is provided under an open source license. I think it’s useful to explain what open source means to us (because various companies out there claim to be doing open source without actually being particularly open). 

We offer the full source code as a free download on our website. No registration required (even from our competitors!). Our documentation is online for anyone to read; so is our bug tracker, the list of features included in the next release, information about which developer is working on a particular API and public discussions forums for anyone to ask questions on the platform or future road map. We really are as transparent as possible about everything we do. 

We’ve made a big commitment that customers would never be forced to write anyone a check to use our software. That’s why we don’t use a single commercial library anywhere in our core open source offering. 

The fact that we’re open source also means that, as an analytics platform, every calculation is transparent. So not only can users see the underlying code behind that calculation, but they also have complete freedom to change the code to fit their requirements. For an analytics vendor this is vital — how can you trust the numbers your platform is spewing out if you don’t know how they have been calculated?

SandHill.com: Besides transparency, how has open source benefited your company?

Kirk Wylie: To start with, we’re able to leverage the whole host of existing open source projects (we’re up to over 50 that we depend on for the full platform offering, from large projects like Spring and Jetty to small mathematical libraries released by U.S. government-funded work directly into the public domain). That’s given us a fantastic leg up over any system that was built before the rise of open source, and what we’ve built in the last four years has been pretty astonishing. 

Open source has also allowed us to build a community of enthusiastic users and technologists around our platform. Because it’s easy for anyone to evaluate the code without having to speak to a salesperson, the threshold for getting started is lower than with most of our competitors. This community also includes a network of business partners that are either contributing code back to the core project or working with end users on implementation projects. 

Like with any open source project, there is a continuous feedback loop between us and the members of the community, which ultimately results in higher-quality software and a stronger product. 

The fact that we’re open source has meant that a lot of firms that wouldn’t engage with traditional vendors are actually open to talking with us. This was actually stated explicitly by a CTO of a large investment bank, who “wouldn’t even be talking to OpenGamma if you weren’t open source.” 

It’s also interesting that our early investors were strong proponents of the open source ethos. Would they have backed us if we were a traditional black-box vendor? Probably not.

SandHill.com: What are trends you’ve seen in the last 12-18 months in how financial executives and managers are altering their risk-management strategies in the wake of the increased regulatory oversight happening across the financial landscape, particularly with all of the changes happening in the OTC derivatives markets?           

Kirk Wylie: There are two sides to this: what are the market structure changes driven by regulations like Dodd-Frank and EMIR, and what are firms doing as a result? 

First, one of the biggest trends that we’re seeing and tracking actively is the move from bilateral to central clearing for eligible OTC derivatives. Simply put, this is changing the types of trades that firms do, as well as how they manage them from a trade processing perspective. 

But it also changes their risk-management requirements. We’re seeing the line between market risk (“What could we lose if markets move against you?”), counterparty credit risk (“What could we lose if your counterparty defaults overnight?”) and liquidity risk (“Do we have enough money for our next margin call?”) blurring. That means that firms have to manage all three types of risk simultaneously.

SandHill.com: What is your company doing to address these customer needs? 

Kirk Wylie: We’ve got some big announcements in this area coming later on this year.

SandHill.com: From your observation, what is the most challenging aspect of innovation, and how have you overcome that challenge at your company? 

Kirk Wylie: One key issue is how to get people to think outside the box and outside their area of expertise.

If you hire all your employees from one bank, for example, they’re going to build what they built at that bank. It will probably be better than what they built at that bank (because they’ve learned from experience), but it’s not going to be that dissimilar to what they saw before. That limits your ability to innovate. 

Similarly, everybody comes to OpenGamma with certain experience that can guide their knowledge. Someone who’s spent a career working with rates may think that a very specific feature in the rates space is the most important next feature for us to work on; however, in the context of a very large product, that might not be the case. 

We’ve tried to foster a culture of innovation by making sure that we pull from as wide a background as we possibly can in every area of the company. We have employees from other financial technology vendors working alongside people who used to work at banks and hedge funds, next to people who come from completely unrelated fields. That fosters a culture where we’re all learning from each other and breaking out of a monoculture.

SandHill.com: What is the most interesting way you have used social media (Facebook, Twitter, LinkedIn, etc.) to acquire customers or employees? 

Kirk Wylie: When we got started, we were in stealth mode for over a year. And yet during that time we had some amazing recruiting success from a single blog post I made on my personal blog that laid out what we were looking for in early-stage employees. 

Interestingly, there were a lot of journalists and analysts who were able to read between the lines given my background and the skills we were looking for, and some of them actually hit the nail on the head that we were working on an open source derivatives system. 

SandHill.com: What do you anticipate will drive the most change in risk analytics solutions over the next three years, and how will the solutions change to address those needs?

Kirk Wylie: I see a few key trends impacting the market. 

The first, and perhaps most urgent, is the continued cost pressure that’s impacting all technology decisions in financial services firms. The financial crisis has forced every company to scrutinize their spending and make radical cost reductions, be they incremental or transformative. 

Second, increased regulatory demands and market structure changes require firms to contend with market-wide calls for greater accountability, transparency and improved risk-management practices. 

Moreover, continued market unpredictability is driving every firm we talk to to see just how they can change from static batch reports to real-time risk. That means being able to measure your exposures during the day, rather than relying on overnight or even weekly risk reports.

We’re also seeing a new leveling of the playing field for technology that has until now been only available to the largest banks. Costs have come down radically — in part thanks to open source initiatives — which means that even a startup hedge fund now has access to the same standard of technology as the entrenched industry players. This also creates new opportunities for entrants from emerging markets. At OpenGamma, for example, over 16 percent of people who download our software come from emerging or frontier markets.

Kirk Wylie is the chairman and co-founder of OpenGamma. Prior to co-founding OpenGamma, Kirk was head of software architecture for the Front Office Technology division of KBC Financial Products. He was also responsible for building the analytics and risk management technology stack for a multi-billion-dollar hedge fund management group. Kirk started his career in Silicon Valley, where he worked for a number of technology companies and co-founded a database technology firm. Follow Kirk on Twitter: @kirkwy. 

Kathleen Goolsby is managing editor of SandHill.com.

 

 

 

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