CITIC Securities: Optimizing Risk Management with FINCAD

CITIC's Challenge

CITIC Securities Company Limited is one of the leading investment banks in China by total assets, revenue, net profits and assets under management.

To grow its equity derivative business in Asia, CITIC decided to begin trading increasingly sophisticated derivative products. However, in order to expand this business, CITIC needed an analytics platform which could support the complexity, volume and performance requirements of the front office with robust pricing models, scalable architecture and critical risk management analytics. At the same time, it was essential to ensure full integration of the new solution with existing systems. CITIC needed to deploy these new capabilities rapidly. Their current in-house solution would require significant development work to meet these needs, and local vendors did not seem to have robust enough solutions or the necessary experience.

Following in-depth analysis of CITIC’s business needs, work processes and systems, FINCAD proposed a solution based on its award-winning F3 analytics technology.

What was apparent from the first meeting, and became increasingly clear, was that FINCAD understood what we needed better than any other vendor. Their knowledge and professionalism are of the highest level.

Xu Xing Hai, Director of Equity Derivatives Business of CITIC

FINCAD's Solution

FINCAD provided a solution for CITIC capable of handling both vanilla and exotic derivative products, generating a full risk report for their options portfolio, and integrating seamlessly with their existing systems—while remaining cost-effective.

The F3 analytics solution has a modern pricing and risk framework characterized by a generic and flexible architecture, which allows it to model virtually any trade, from vanilla to exotic. Convenience functions enable common trades to be modeled while F3 also provides the granular building blocks to engineer complex structures from their basic elements. In a relatively short period of time, they were also able to test their models and validate the results.

The Results

The F3 analytics solution is robust and provides risk with respect to all market data quotes and both intermediate and final model variables for any trade or portfolio, no matter how complex.

Additionally, first-order sensitivities are produced in a fraction of the time it takes to run similar calculations using traditional curve bumping methods—which is possible thanks to FINCAD’s patented Universal Algorithmic Differentiation™. The F3 analytics solution can also distribute calculations and optimize resources to make intra-day risk and valuation easier. These efficiencies have optimized time to market at CITIC.

We use FINCAD to analyze risk for our entire options portfolio, including vanilla and exotic products. FINCAD provides near instantaneous sensitivities for even the most complex structures.

Xu Xing Hai, Director of Equity Derivatives Business of CITIC

Implementation was streamlined, fitting in with CITIC’s existing trading, settlement, and portfolio management systems seamlessly. The solution is data storage agnostic and provides flexible and persistent deployment on industry-standard relational database servers.

Today, CITIC uses FINCAD’s solution to support trading in Hong Kong and Mainland China, which requires implementation with both Chinese market data and global market data.

FINCAD’s Beijing office provided expert professional services, and senior quantitative analysts and engineers from FINCAD headquarters were also available on site to ensure the success of the project.

Between the training we received and how easily their solution fit into our current systems, we were operational in only a few months. This was instrumental in enabling us to get our new business off the ground as quickly as we had hoped.”

Xu Xing Hai, Director of Equity Derivatives Business of CITIC