Reval (HedgeRx) announces acquisition of competitor FXPress (FIRST), bringing together two innovative leaders in the software-as-a-service
(SaaS) space for risk management and hedge accounting technology.
At first glance, it appears as one competitor taking over another. The benefits of competition (price, service, innovation) notwithstanding, the melding of these two market leaders could prove to be a boon for current and future clients. While the roadmap of how the combined unit will leverage the best of each technology remains to be seen, it will hopefully unfold in a thoughtful manner over time. The near term benefits to users should be a fill-in of gaps in each system from the strengths of the other through future releases. To allay any concerns, there does not appear to be any plan in the works to sunset either system. Nevertheless, it wouldn’t appear to be efficient to keep both products moving along separate paths in the long term. All in all, this should be a plus for clients of both systems, and a potential concern for other providers in this space.
Both systems are noted for their strengths in similar areas, namely derivative valuation and hedge accounting. But each system grew from different sides of the trade. Reval, with CEO Okochi’s background on the sell-side, sprung from the bank trading desk perspective with a focus on quantitative valuation and data sources. While FXPress, with CEO Richardson’s tenure in the corporate treasury domain, grew from a practitioner’s perspective, predominantly focused, at least in the initial years, on FX hedging. Each brought their strengths to the market of corporate hedge practitioners over time in an ever advancing need for valuation, hedge accounting, and straight-through-processing (STP). Now, the combined entity will leverage its roughly 350 clients with the intent of claiming the title of the ‘undisputed leader in the space.’
For the client, current and future, it’s an opportunity to leverage the strength of each, mitigating the give and take in making the decision to go with one over the other in the past. Reval’s strengths lie in their breadth of hedging instruments and exposures, valuation models, internal data sources across a plethora of markets, and, most notably, their expertise in hedge-accounting (FAS133/IAS39) and fair value analysis (FAS157). On the other hand, given the
complexity of the subject matter, the system can appear intimidating to the uninitiated at first glance. FXPress on
the other hand, most noted for their experience and expertise in FX hedging, is often renowned for their workflow – ‘following the life of a trade,’ and often focused more on the front-end user – the trader, in an apparently more familiar, or softer, look and feel. Further, FXPress is renowned for their ability to customize reports to clients’ needs in a nimbler fashion. While there are many similarities and other strengths of each, these seemed to be some of the most notable at first glance. Again, the biggest winner here should be the customer.
To Mr. Okochi (Reval’s CEO) and Mr. Richardson (former CEO of FXPress and now senior executive with Reval), when you’re contemplating what your future wish list for your ‘new’ system should look like one day, we have a few suggestions of things we would like to see added to benefit the corporate hedging practitioner even further. The current sophistication and strength of the systems notwithstanding, coupled with the daunting task of trying to reinvent the wheel, we’d like the system to further automate / streamline the decisions and management of the
life of the hedging process. In light of that, we’ve outlined our own Christmas Wish List, some of which the systems may already possess but we didn’t want you to think we didn’t appreciate what we already have.
The Life of a Hedge Wish List:
- Tools for understanding our risks
- Exposures, or visibility to them, coupled with reports to aid our senior management in providing feedback in setting our hedge objectives.
- Pre-trade analysis tools
- Help us select among alternative tools (swaps, forwards, options, and the like) and strategies (hedge exposure levels and time horizons, for example).
- These tools may include a simpler break-even analysis, historical volatility analysis, quick and simple stress testing, orthe more advanced, model-based, simulations such as cash-flow at risk.
- Pre-trade reports would also benefit us in convincing management of our chosen strategy as well.
- Historical analysis
- Some view on how our hedges have worked in the past, or potentially would have. No guarantee of the future we know.
- Embedded in the system. Our auditors hate when we select the data and import it.
- Trade execution
- Nice to automate the bid and execution through a single portal.
- Trade confirmation
- We hate paper, or at least we lose it.
- Trade settlement
- At initiation and at expiration. Straight-through-processing to/from our G/L, ERP, and/or Treasury Workstation (TWS) would be nice.
- Hedge accounting
- Pro-forma G/L and hedge accounting (FAS133/IAS39) assistance and recommended solutions. We like to keep the Controller off of our backs as perceived accounting risk can sometimes trump the economic risk that we’re trying to hedge.
- For the trader: it’s important to keep a close eye on our dealer’s quotes.
- For the accountants; they like to reassure our auditors (FAS157 is a bear!)
- Counterparty exposures
- Can’t be too careful these days. Any chance for us to integrate some of our other exposures, credit, etc. with these counterparties for aone-stop view of our risks?
- Performance analysis
- We need to know whether we’re meeting our objectives and where the gaps lie.
- Customizable / templates – we spend most of our time pulling data from all of our great systems to give our managers the reports they want, not what you think they want.
- Keep in mind that we, and especially our bosses, are very busy, and sometimes simple minded – a picture is worth a thousand words here; trust us.
- We’ve been asking for them, and they are very helpful in these high-stress / high-volatility times; it pays for the resilient treasury to be aware and prepared!
- Show us the gaps and necessary handoffs, confirmations, etc. still to be processed.
- Look and feel
- With respect to your biggest competitor in the market (spreadsheets), we’d like it to look similar and integrate easily with what we already know very well, although we don’t expect those spreadsheets to get much use as, hopefully, we’ve contained all that we need in the system.
While many of these attributes are already included in one or both systems, some gaps across both still remain, but, as we’re keenly aware – ‘the engines are there’. Did we forget anything? Probably, but Christmas is still a ways away, and we’re sure we’ll see you again. We’ve been nice corporate hedgers this year – despite the challenges.
All in all, this acquisition should be a win for clients in this space. Will this benefit the market with increased capabilities or result in less competitive development and pricing? Should their
competition be worried? In a time when acquisitions have quieted down in the treasury space, this may signal some additional move as others seek to counter this activity. Will this make WSS , Sungard and IT2 behave differently?