Case Study: Tullett Prebon - Open for a First-Rate Service

CASE STUDY

Tullett Prebon Open for a First-Rate Service

In the fast-moving/margin-sensitive world of broking, IT systems must be able to keep up with the demands of traders and markets. Changes to the way prices are calculated have to be implemented as soon as possible if the broker is to maintain its competitive edge in the market.

One approach has been to keep all development activity in-house. However, this can be costly as IT staff must maintain the core system as well as support traders by providing rapid responses to their requests for changes in the way that the systems model the market.

Buying a commercial system, on the other hand, can mean that pricing models may need to be enhanced to reflect the current market preference for pricing methodology. Reliance on a software vendor removes the users flexibility as their priorities may not always be compatible with that of the supplier.

In 1999, Tullett Prebon, one of the largest inter-dealer brokers in the world, were determined to find a middle ground by choosing an open, platform-based analytics environment that would provide both the flexibility and response of their in-house option, together with an application development that a commercial vendor could provide.

Tullett Prebon had experience with both sides of this equation. Their challenge was to equip the companys brokers with the right tools, in an advanced open environment that would ultimately provide the business users with the control to create and manage their business needs. Additionally, Tullett Prebon's senior management were seeking to equip their business and technical managers with modern tools so that they could become self-sufficient and only rely on the commercial software provider for enhancements and training.

According to Peter Moss, European Technology Director at Tullett Prebon, "We found only one or two vendors that could offer this type of environment, and of course, in particular we needed a vendor that was totally independent."

Kalahari Limited, which is a global provider of real-time analytics, price discovery and decision support solutions has been providing mission-critical software and consulting solutions for more than 15 years. With no affiliation to broking houses or banks, Tullett Prebon took the decision to engage with Kalahari to provide an application that would satisfy their requirements. Tullett Prebon had reasoned that past experience with Kalahari, utilising various software applications, coupled with the relationship they had experienced over the years, made their selection an easy decision.

"We've gone from being a small user of Kalahari's WinDiamond product to utilising kACE as our primary analytics tool for more than 70 brokers in Europe," said Peter Moss. Tullett Prebon started rolling out kACE in September 2000, and have been actively building their own bespoke calculation models within the kACE development environment. Their objective was to totally replace the existing infrastructure at their London operation. The analyst team mainly ex-brokers themselves work closely with the brokers to keep abreast of whats needed to maintain and increase business. Today, the team has two people working full-time on developing models utilising the Kalahari provided kACE system. They take the requirements directly from the brokers and, using the functionality of the kACE software combined with their own bespoke calculations, rapidly supply new or modified models for the brokers to price the instruments they are trading in.

Tullett Prebon started the migration to kACE with 15 brokers on its Sterling desk, then a further 20 on the Euro desk. "Basically, we pilot kACE on a desk-by-desk basis over a two-week period. Once the brokers are happy with the product and models weve built, we switch kACE on, then move to the next desk," said Toby Young, Head of Business Technical Managers at Tullett Prebon.

Since the beginning of the project, Tullett Prebon has been able to reap a number of incidental benefits of the system, particularly on the pricing and analytics side. As a world-leading broking house Tullett Prebon needs to know where the market is at all times. "kACE is a very strong price discovery and analytics solution and works in conjunction with our OTC:Marker product. It is difficult to quantify how much our desks are earning since migrating to kACE , but combined with OTC:Marker, we have definitely seen a positive impact." continued Toby Young.

With kACE, Tullett Prebon always know where the market is, and as a result they continue to provide their customers with a first-rate service. More importantly, when the market changes and instruments are priced, this can be reflected in-house very quickly. Before the implementation of kACE, Tullett Prebon would need to go back to the vendor and get quotes on changes and wait for the work to be done, and that can have an impact on profitability and performance.

kACE provides Tullett Prebon with the ability to build their own specific, bespoke models, which ultimately give their brokers an edge over the market. "With kACE we can react to market changes immediately. We write our own analytics on the kACE platform, thus get absolute flexibility. We can no longer be reliant on any external applications provider to make changes, because not only does that take time but even minor changes would cost too much," said Peter Moss.  Many of the changes broking houses need to make on a regular basis can be quite small and even these end up costing time and money. kACE offers absolute flexibility and independence. With kACE there is almost no calculation that Tullett Prebon couldn't write themselves. Essentially, they have first and second level support in house and they rarely need to call upon the technical support staff from Kalahari.

kACE can incorporate other calculations and models from third party and in-house libraries as well as Excel models, and users can either select from a series of pre-built pricing screens or build their own using the in-built designer. The open architecture provides a fast track development for the firms business technical managers, where bespoke analytics can be developed on site and without the assistance of Kalahari. Prices and calculations can be shared across the firms Intranet, or via the network. Any data can be analysed in two or three dimensions, allowing users to slice and dice the data, and switch back and forth between different data presentations at any time.

Fundamentally, Tullett Prebon now have a bespoke business analytics, price discovery and decision support solution based on the kACE modelling environment, analytics and libraries. They use many of the kACE calculations, but in addition, they have incorporated their own calculations. They find model building within kACE comparatively simple. The models they have built to date include interest rate swaps, forward rate agreements, asset swaps, interest rate options and overnight index swaps. The Kalahari software is dealing with all aspects of the firms internal rates system, which means that it is used to calculate forward forwards, spreads, asset spreads and cross-currency spreads. All of this is done across a range of currencies including Euros, Sterling, Scandinavians, Yen, Swiss, US and Australian dollars, and Emerging Markets currencies as required.

The kACE software also creates a controlled environment for every level within the firms trading room, ensuring that all the brokers are using the same basis for their calculations. kACE takes into consideration the problems and issues that obstruct the ease of every day broking and trading, such as disparate stand-alone systems, high maintenance costs and inflexibility.

A particular example of this is that, like many other financial institutions, Tullett Prebon suffered from what it calls the in-house spreadsheet virus. "Spreadsheets proliferated everywhere.  A broker would write one, pass it to another broker, who could then make more changes to the original spreadsheet, then pass it on again," said Toby Young. They could end up with 50 or more versions of one spreadsheet scattered around the company. If you multiple that by 20 different original spreadsheets, this became an impossible situation to support.

One of the advantages of kACE, particularly with the less mainstream products like Emerging markets and Scandinavian currencies, is that the spreadsheets have been completely eliminated. kACE makes available in-house design and implementation of calculation models by allowing freedom to change the mathematical structures using its application designer module. Models can be designed and saved as a calculation, which can then be integrated into the complete application. On top of this, it already has over 1,600 calculations from industry-standard libraries embedded in it, along with Kalahari's own libraries.

Another additional benefit is that Tullett Prebon can use kACE to automate and control its market data sales business. All of the data that is generated on the trading floor is published via its Reuters Triarch market data distribution system to information providers such as Bloomberg and Reuters. "We had a lot of problems due to lack of functionality and reliability which meant we had prices but we couldnt give them to anyone," said Toby Young. Before kACE, Tullett Prebon managed data sales through spreadsheets, which meant writing a whole host of programs to eliminate multiple data contributions being made if two traders opened the same spreadsheet, which was a common occurrence. Furthermore, if the spreadsheets were not operating correctly, no prices were published.

Utilising a client / server environment, kACE has centralised and controlled Tullett Prebon data publishing activities. Each desk has one server, so there is never an issue with two brokers trying to contribute a price for the same product, and since it is all being done from the same server, everyone sees the same prices, and therefore everyone knows where the market is. Over the next 12 months, Tullett Liberty plan to extend this and start publishing its arbitrage prices out of kACE models.

The Kalahari solution is mission critical to support the Capital Markets business objectives at Tullett Prebon. Their brokers must keep a close eye on where the market is and where it is changing, and respond with speed. According to Peter Moss, "There is only one path to success, you have to get directly involved in improving the experience that your customers have. You have to equip the players in your organisation with the tools to ensure quality interactions to further the relationships instead of simply conducting transactions."

About Tullett Prebon plc
Established in 1971, Tullett Prebon is one of the world's leading wholesale financial brokers. Represented in all major financial centers, Tullett Prebon has leading positions in Fixed Income Securities, Interest Rate Derivatives, Equities, Energy, Credit Derivatives and FX and Money Markets.

About Kalahari Limited
Kalahari is a global provider of real-time analytic solutions and strategic consulting services to financial and energy institutions, including the Worlds top ten broking firms, in more than 15 countries. For over 15 years, Kalahari has been helping companies unlock disparate enterprise data, through the use of real-time analytical technology, and provides the tools that turns data into meaningful information, helping companies drive business strategy and improve the bottom line.

Kalahari's solutions can process structured and unstructured data from more than 2000 inputs simultaneously, and can conduct more than 1600 calculations in real-time and at sub-second speed.

Kalahari has a presence in Europe and the USA. Additional information about Kalahari is available at www.kalahari.co.uk

At a glance: kACE at Tullett Prebon

Strategic Goals:

• Create a centralised price discovery and analytics solutions for in-house brokers
• Eliminate the huge support necessary for spreadsheet proliferation
• Reduce the need to rely on outside vendors
• Reduce modelling and analytics development cycle times
• Introduce centralised and efficient data publishing functionality
• Enhance market position by improving ability to respond to customer requirements

Approach:

Tullett Prebon's challenge was to equip their brokers with the price discovery and analytical tools needed to maintain and increase business. In addition, Tullett Prebon wanted an environment where they could enhance their level of competitiveness by designing their own bespoke analytical models, but at the same time without being too heavily reliant on an outside vendor. The migration of kACE was conducted on a desk-by-desk basis, affording each desk the facility of operating from the same server, and therefore, ensuring the brokers always knew exactly where the market is at all times.

The company has seen a number of fundamental improvements since its migration to kACE, including: improving its modelling capabilities; increasing the speed at which it responds to the way the market prices instruments; eliminating the need for spreadsheets; the ability to publish accurate prices back out to the market via market data vendors such as Bloomberg and Reuters; and in conjunction with Tullett Prebon OTC:Marker

Results Achieved:

• Created an environment of self-sufficiency and independence
• Significantly reduced support costs
• In conjunction with OTC:Marker, made significant increases in desk business
• Respond immediately to market changes
• Eliminated the creation and resulting proliferation of spreadsheets to price instruments
• A fast track development for bespoke analytics
• Increased quality of customer interactions