Nippon Credit Takes FNX Worldwide For FX, Interest Rate Dealing, Risk

Nippon Credit Bank has selected FNX's trading and risk management system to support its global foreign exchange and interest-rate trading operations. The sale is FNX's largest to date and is the first instance where a major international bank has licensed the vendor's integrated front-to-back office system to support all its global trading and risk management functions.

Koji Asano, deputy manager of Nippon Credit's financial instruments group in Tokyo declines to comment on the FNX system's functionality and uses, since no portion of the application has as yet gone into live production.

However, Asano does say the bank undertook an extensive systems search and evaluation process prior to choosing FNX. Nippon Credit judged that it could effectively build a comprehensive, vertically integrated real-time trading and risk management systems infrastructure based on FNX's technology.

Asano declines to name the other systems Nippon Credit considered as part of its evaluation. However, other sources say Software Options' Cots and ADS Associates' Global Trader were among the other bidders.

The testing phase of the bank's selection process lasted approximately three months, according to FNX officials.

The FNX system will support worldwide front and back office cash and derivatives trading at Nippon Credit, including foreign exchange, money and debt markets. A separate middle office department will be responsible for daily monitoring of the bank's local and global market risks and credit lines.

Development staff at Nippon Credit recently completed work on a proprietary front-office forex options trading system and Tokyo will rely primarily on this system over the near term, says Sean McDermott, who heads FNX's Japanese office. Eventually, Nippon Credit will use the FNX system in conjunction with the proprietary system. Until then, that will write to FNX's risk database for consolidated risk analysis, he adds.

The bank also makes use of a proprietary back office system to generate confirmations and administer its Japanese Government Bond (JGB) portfolios. This system will run on top of FNX with direct links to it for straight-through processing, says McDermott.

After an initial rollout in its Tokyo head office, Nippon Credit and FNX will implement local application and database systems at the bank's New York, Singapore, Los Angeles, Hong Kong and London dealing centres.

The bank will use Unix servers and PC front-end clients, eventually enabling between 150 and 200 Nippon Credit users worldwide to access FNX's functionality, according to FNX officials.

Initial FNX modules supporting Japanese money market and JGB cash and derivatives trading are scheduled to go into production by June, and the entire project is expected to be completed in 1997, add vendor officials. Nippon Credit will install two separate FNX systems hosted on back-end Sun Microsystems' SPARCstation 1000 servers: one for trading and back office operations and a second for consolidated market risk management and credit limit monitoring, according to McDermott.

End users in Japan and overseas will access these systems either directly from desktop Sun machines or via X-terminal emulation software installed on Microsoft Windows-based PCs.

Although they are nearly identical in terms of their composition and configuration, the two systems differ in terms of their information flows and end-user requirements, McDermott says.

Trade information will be captured locally on databases at each Nippon Credit dealing centre throughout the day for further local middle and back office processing. Trade data will also flow throughout the day from the overseas centres' front office systems to Tokyo's centralised risk databases for consolidated market risk analysis and credit limit monitoring.

This uploaded information will be used by the Tokyo risk system to update credit lines and market risk exposures. Information will then flow back out to the regional dealing centres to provide them nearly up-to-the-minute updates on risk exposures and credit line availability, according to McDermott.

FNX developers have made extensive use of Sybase version 10's replication server capabilities to build such functionality into the system (Derivatives Engineering & Technology, April 15). Nippon Credit will also be able to take advantage of the vendor's recently developed cash management module to manage its payments and receipts processing, say FNX officials.

Adapting the FNX system for use at a major Japanese bank headquarters took a lot of development and design work, according to McDermott. Capturing all the intricacies of the Japanese bond and money markets, as well as implementing customized back-office functionality, required an especially concentrated effort on the part of FNX's development and client support teams, he says.

McDermott also says FNX has made several senior-level additions to its management team recently, and this added experience has served the vendor in good stead in Nippon Credit's case, he notes.

Shortly after hiring Mark Galant, the former head of Crédit Suisse's global forex options trading as a senior business manager over a year ago, FNX acquired U.K.-based Financial Systems Software and retained that company's founder and president, Mamdouh Barakat, to lead its interest rate and fixed income cash and derivatives development team.

The vendor then hired Gregor Rominger, the former head of Union Bank of Switzerland's global back office derivatives group, putting him in charge of FNX's back office product development. Rominger has spent over six weeks in Tokyo working on implementing the system according to Nippon Credit's specifications, says McDermott.

More recently, the vendor hired Jim Dennelly, former head of interest rate derivatives trader at the Federal Home Loan Bank of New York. Dennelly has been instrumental in helping design and implement the system's newly developed front office JGB and repo trading functionality, adds McDermott.