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TwoFour Case Study

Embedded Derivatives Analytics in 24x7 Global Trading System Keeps Costs Down and Reduces Time to Market

COMPANY OVERVIEW

Founded in 2002, TwoFour is a product and services company focused on providing treasury, FX and cash management solutions to the world's leading financial services organizations. TwoFour prides itself on its deep industry knowledge and ability to deliver innovative solutions that solve its clients' most pressing problems, while anticipating future industry dynamics so that it can help its clients globally prepare for them.

FINCAD Analytics are embedded in the TwoFour System, a flexible, workflow-based trade processing solution designed to improve user efficiency and productivity; reduce system implementation, integration, maintenance and operational cost; and increase the percentage of Straight-Through-Processing (STP) transactions. While the TwoFour System primarily focuses on clients that have processing needs around foreign exchange (FX), treasury and cash management, its niche is in handling significantly large volumes – the system recently benchmarked at 4,000 cash flows per second. TwoFour's clients range from the buy side to the sell side and include corporate treasuries, asset management firms, banks and broker-dealers. The company currently has offices in New York and London, with anticipated expansion into Asia, in 2010.

CHALLENGE/PROBLEM

Faced with tough competition from its counterparts that have been in business for over 25 years, TwoFour, a relatively new player on the market, knew the key to remaining profitable was to focus on keeping development costs down. After all, the company prides itself on its ability to invest in the future with flexible and adaptable business solutions. TwoFour learned from experience that it is better to partner with industry-leading companies that have a particular expertise than spend significant time (and costs) developing features in-house that are not its core competence. This idea also fit with the company's overarching vision of the TwoFour System – to make it open, easier to use, and more flexible.

With the explosive growth of derivatives in the industry, particularly in FX and interest rates, TwoFour decided this was an area it would outsource or find a partner. Developing the pricing models for its range of instruments across multiple asset classes would have taken TwoFour too many person hours, thus increasing its costs and time to market. The company therefore sought to partner with a 3rd party derivatives analytics vendor with solutions that could meet its requirements. In keeping with its open, easy to use and flexible ethos, the company looked for a vendor with similar offerings.

FINCAD SOLUTIONS

The FINCAD analytics library was chosen for the TwoFour trading system as the product's broad cross-asset class coverage, ease of use, and affordability met with TwoFour's requirements. "FINCAD's low total cost of ownership and easy development tools compared to its closest competitor made it the ideal derivatives analytics solution to embed in our trading system," said Chris Davis, co-founder of TwoFour. "With its focus on over-the-counter (OTC) derivatives using industry-standard analytics, we found FINCAD complemented TwoFour nicely. As a FINCAD Alliance Partner, we embed FINCAD analytics directly in our system so our clients can price their OTC FX options and calculate the Greeks (risk statistics) - up to 1,000 transactions in a second. The TwoFour System continues the transaction lifecycle by processing the trade, calculating P&L, confirming and settling the trade, handling the accounting and real-time credit monitoring – all in one product. FINCAD is an important contributing factor in making this a seamless process for our clients."

BENEFITS

With FINCAD derivatives analytics embedded in TwoFour's trading system, the company was able to bring its product to market faster than if it developed the analytics models in-house.

"By partnering with FINCAD and leveraging its derivatives analytics library, our company has saved hundreds of thousands of dollars by not having to build and develop the pricing models ourselves. Furthermore, with the expanded instrument coverage, we are able to market to new prospects and enhance our offering to existing clients. The FINCAD partnership enables us to be more flexible and further increases the competitive edge of our solution over more traditional legacy systems on the market," says Davis.

FINCAD analytics have already begun to help TwoFour secure new clients. One example was during a demo of its entry screen for OTC options – the price and risk calculations provided by FINCAD were updated almost instantaneously, easing any concerns the client might have had about the speed of the product. In another example, the fact that TwoFour's derivatives were coming from a 3rd party analytics library was itself a key requirement for one client since it meant the firm would not need to rely on brokers for its valuations. TwoFour attributes these unique factors to its success in securing these new clients. "We can attest to the fact that weare not a black-box system, our analytics are driven by a reliable 3rd party source that only uses industry standard, market-tested models," says Davis. "Our partnership with FINCAD is certainly one to pay dividends in the years to come. I would recommend them to other companies looking to embed derivatives analytics in their system."

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FINCAD's low total cost of ownership and easy development tools compared to its closest competitor made it the ideal derivatives analytics solution to embed in our trading system.

Chris Davis Co-founder,
TwoFour