A Chat with Russ Chrusciel, head of Sungard Valdi Options

May 9, 2012

On April 30, Sungard announced that its Valdi Options Risk Manager now supports options traded on international exchanges. JLN Options editor Sarah Rudolph spoke with Russ Chrusciel, the head of Valdi Options U.S., at the Options Industry Conference last week in New Orleans about the recent changes to the Valdi offering and the prospects for the options exchange space in the coming years.

Q: What is the role of Sungard Valdi Options?

A: We work with options traders and risk managers to create options risk management solutions, options valuation solutions, and solutions that serve the needs of general options traders.

Q: What is your latest addition to the Options Risk Manager?

A: Three things are new. First, options risk manager now supports analysis and valuation for foreign-listed options. We had previously been solely focused on U.S. listed options.

Second, we have introduced an extension of functionality that gives each user the ability to look at individual option Greeks and specific theoretical values.

Third, the solution is offered in ASP, or what some people call a “hosted” solution. That reduces the hardware costs, and reduces infrastructure maintenance costs over time.

These changes were officially launched in the past week.

Q: Which international options do you cover?

A: There are about 80 or 90 foreign exchanges. We don’t include them all at this point, but we have the capability through our Sungard global network and our in-house data providers to support a listed options market if the customer demand is there. Our primary focus is and will continue to be options exchanges that have a critical mass in volume and that our customers are seeking to be involved with. A couple of examples are the Montreal Exchange and the Eurex Exchange.

Q: For the Asian exchanges, will you provide this in their language?

A: At this point, there have been no specific changes made to the display to accommodate Asian letters or numbers.

These changes really emanate from customer demand. A lot of US customers are looking for trading opportunity elsewhere.

Q: What are some of the reasons customers are looking for trading opportunities outside the U.S.?

A: Some of this is speculation on my part, but there is a belief that, compared to the U.S. markets, other markets are not as efficient, so there might be greater alpha opportunities out there. Also, a lot of established trading firms have ideas that have proved fruitful in U.S. options trading, and they are curious about how those strategies may translate into foreign trading opportunities.

Q: Could you explain a bit more about the ability to “drill down” into specific symbols?

A: Options Risk Manager is an extension or “next generation” of an established ASP solution we’ve had for a few years. The prior iteration was perhaps more portfolio-based in structure and in how it provided value to the end user. With the new drill-down capabilities, we’re providing value and true trading functionality to both the risk manager and the options trader.

The ORM application supports both the general and the specific. It gives customers the ability to analyze a portfolio of global options positions, while at the same time providing the ability to zero in on the options one symbol at a time as desired.

Q: Is it geared toward portfolio managers then?

A: Actually, no. It could be used by a prop trading firm, or the risk manager of a prop trading firm, or by an options sales trader who needs to look for potential trading ideas or opportunities.

Q: How did the demographics break down for the previous product?

A: The prior version was geared more toward the risk manager or manager of a few other traders. Now, the ORM solution serves the needs of the fundamental options trader who is getting down into the dirt of options trading, as well as still serving the needs it served previously.

Q: Does it open up more opportunities at brokerage firms or sales traders as opposed to prop shops?

A: Certainly, and with the support of this drill-down capability it allows more flexibility to serve the needs of a couple of user profiles. A sales trader might not have used it in the past because he or she wouldn’t be able to drill down and see that the IBM June 30 call (for example) was worth $1.97. Now you can do that.

While it was previously geared more toward post-trade risk management, this version supports pre-trade, current trade and post-trade management, irrespective of the user profile.

Q: So what’s the next generation? Where does this lead?

A: It will be customer driven, based on customer feedback. That is what initially led us to explore and bring to market an international solution. It will be based on where the option market goes in the next 18-24-36 months. I can see it going in a couple of different directions. The analytics will continue to be refined based on how our clients and perspective clients are cutting through risk within the marketplace. That will certainly be a driver. As new products come to marketplace, risk management systems will need to adjust accordingly to accommodate such products.

Ten or 12 years ago the whole notion of a VIX contract didn’t exist. So where the options market heads in general will dramatically shape where solution providers like ourselves take things in the years ahead.

Q: One of the things we see is proliferation of VIX-like products into the futures world and more electronic trading of futures options. Do you expect to see your product applied to that market as well?

A: I certainly see an opportunity there we might explore, if it’s a logical extension. If there’s a critical mass there, we owe it to ourselves and our customers to do that due diligence.

Q: Several new options exchanges are coming on line. How does having 14 or 15 U.S. options exchanges affect your business as opposed to the current nine?

A: In the short term, it’s not a dramatic hassle, but potential market data increases are a concern – probably moreso for actual trading and clearing firms, those operators that need fundamental connectivity and management to the exchanges. Because Valdi Options’ primary focus is on risk management and analytics, we can be a little more flexible in how we optimize data – for example, being able to run risk simulations off an NBBO, as opposed to having to digest market data from each individual options exchange.

It’s something we obviously need to track, but it’s not as important to us as it is to pure execution providers, who need connections to every exchange.

Q: What do you think the peak number of exchanges in the U.S. will be?

A: Today we have nine. Nasdaq is opening a potential third options exchange, ISE is opening a potential second, and Miami International Holdings is planning yet another. How many will see the light of day ever? I will say the top number we will see at one time will be 12.

I truly believe the exchange landscape will dramatically change in the next 2-2

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