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JP Morgan Launches Online Derivatives Services Company

JP Morgan will later this month launch Cygnifi, an independent derivatives services company that will offer market and credit risk applications, independent valuations, portfolio stress testing, counterparty exposure simulations and collateral services to clients through Internet and other e-commerce vehicles.

“The company will provide state-of-the-art applications and analytics to clients at attractive price points by taking advantage of e-commerce distribution efficiencies,” say officials. “For information technology professionals, building complex derivatives solutions will become simpler through use of Cygnifi’s products.”

The services will be offered to customers through either an Application Service Provider (ASP) or Value-Added Service Provider (VASP) business model.

According to Jay Helvey, chairman and chief executive of Cygnifi, the company will be the “first in the space of derivatives services” to offer clients an independent, Web-based service focusing on market and credit risk. “By capitalising on recent advances in technology, we will be able to improve control and transparency for derivatives users and offer a range of high-end risk management services to clients,” he says.

“Our clients will be able to rent sophisticated derivatives applications as a collection of components, use them over Internet or private networks, and integrate them through standard electronic interfaces with their internal systems,” adds Vlad Torgovnik, president and chief operating officer.

“Technology allows us to deliver proprietary analytics to the client in a reliable fashion,” says Helvey. “Through this venture, we are putting leading proprietary applications and people into a new company that we hope will bring more derivatives users into the marketplace.”

Both Helvey and Torgovnik were senior members of JP Morgan. Helvey spent 15 years with Morgan and previously served as vice chairman of Morgan’s Risk Committee and was global head of derivative counterparty risk, while Torgovnik spent eight years with the bank, most recently as head of derivatives IT.

JP Morgan is Cygnifi’s largest investor, and so will work closely with the new firm as a strategic partner in identifying clients, says Helvey. Cygnifi will be headquartered between New York and London.

Partners

Morgan has partnered with Sybase, one of the largest global independent software companies, as well as with derivatives analytics specialist NumeriX, and Bridge Information Systems, to provide clients with “comprehensive and scalable derivatives services using e-commerce”. Clients will have access to analytics from both JP Morgan and NumeriX, while Sybase provides the technological infrastructure and Bridge, the data and connectivity.

Helvey says the founders are in ongoing discussions over solutions services, and also intends to form additional strategic partnerships.

Client Strategy

The service is aimed at financial institutions (mid-sized and regional banks in the US, Europe and Asia), asset managers and corporates, Helvey says. “We are trying to target a broad base of clients, across market sectors, by delivering applications using the Internet or private networks,” Helvey says.

The focus will primarily be in OTC derivatives, covering interest rates, FX and credit, and eventually evolving into equity derivatives, he adds.

“Part of our aim is to provide efficient, proven applications and support to our clients, by helping them develop in-house capabilities and expertise,” Helvey says. “One of the things that makes this scalable, is the development of electronic standards, whereby data can be efficiently moved between clients who need onsite tools and advice and service providers.”

“Between the ASP, online advice and solutions, we’re going to help a lot of clients augment their skills and knowledge of derivatives for those who have previously found the barriers to entry too high,” he adds. “Clients no longer need to make a large capital outlay to gain access to a very high calibre of risk management services.”

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