Tullett Prebon, an interdealer broker, and Calypso Technology, a global application software provider to the capital markets industry, will be launching the TP Correlation Service.
Using the power of Calypso's Galapagos platform, the service will provide Tullett Prebon's bespoke synthetic CDO clients the ability to efficiently explore a range of transactions from a pool of anonymously-provided liquidity.
Tullett Prebon and Calypso Technology believe that this initiative has the potential to recreate liquidity in a marketplace.
Bespoke synthetic CDOs are highly customizable CDOs in which the underlying portfolio comprises credit default swaps, according to a release from both firms.
Counterparties typically exchange tranches of risk on agreed portfolios of credit default swaps and the tranches themselves are defined by the level of credit risk exchanged.
They have been heavily used as investment and trading instruments in the last decade, but the credit crisis has caused dramatic reductions in liquidity and transparency and very large shifts in valuations. Many institutions who want to offer liquidity and to support the marketplace are finding current processes to be inadequate.
Regenerating liquidity in synthetic CDOs, according to the release, is something that will benefit the financial marketplace both by enabling short-term reduction of unwanted risk and also allowing a more general recovery.
Tullett Prebon and Calypso's Galapagos unit have come together to develop a platform that will bring to the process operational and transactional efficiency.
Clientscan upload individual trading objectives and constraints to the highly secure and confidential Galapagos environment in which the platform's evolutionary algorithms will then identify the optimal risk reducing trades in the market at any one time. The service is set for launch to clients in 1Q10.
"Tullett Prebon and Calypso Technology have been working jointly to test this initiative with the main market participants in London and New York," said Mike Binns, managing director credit and new products. "Tullett Prebon, noted, Our clients indicated overwhelming support for this innovative approach which will attempt to solve one of the more intractable problems currently exercising the financial marketplace."
"This is another example of how we are responding to the aftermath of the crisis with innovation and agility," Charles Marston, chairman and CEO, Calypso Technology, commented, "With Tullett Prebon, we identified a need and a solution, and then worked together to bring the market players together to make it happen, demonstrating both leadership and vision."
"As the financial services industry continues to experience change, we are seeing a greater demand in specific areas of the credit markets and beyond," John Mooren, general manager of Calypso's Galapagos business unit, added. "We are excited by the continued success of our Galapagos product and look forward to working closely with Tullett Prebon."