Bachelier Technology Derivatives 2004 Tech Summit

The 2024 Bachelier Technology Derivatives Tech Summit, themed "Facing the Future: Exploration and Practice of China's Derivatives Technology," was successfully held last Friday. Technology and risk control experts from across the industry gathered to exchange ideas and jointly explore the future of technology development and risk control systems in China's financial derivatives sector.

Over the past decade, China's over-the-counter (OTC) derivatives industry has grown from nothing into a core business for financial institutions, with its importance increasing daily. Along with the significant rise in business complexity, the construction of derivatives systems has become increasingly crucial for companies' business development and risk management. As a core part of institutional business, OTC derivatives involve various business types such as OTC options, swaps, structured notes, and cross-border transactions, with underlying assets spanning equities, FICC, and other multi-asset classes. It also involves a series of complex and variable application scenarios including client-facing services, hedging, bookkeeping, risk calculation, clearing and settlement, valuation, risk control, and regulatory reporting. Therefore, its technology stack and system architecture differ from traditional systems.

As a vital, company-level core system, the construction of derivatives systems has also gone through a "from 0 to 1" phase over the past 10 years. Major institutions have explored this path relatively independently based on their own characteristics, encountering their own questions and reflections along the way. This summit marked the first time the industry has brought together relevant experts from major securities firms to focus specifically on financial derivatives technology, sharing experiences and discussing current core issues.

At the beginning of the summit, Mr. Shao Zhongyi, Managing Director at CICC, delivered an insightful keynote speech on "Experiences in Financial Market System Construction." First, Mr. Shao compared the current state of the derivatives business in domestic and foreign investment banks and securities firms. He then shared insights on different technology paths and the difficulties and challenges of system construction. Finally, considering the current environment, Mr. Shao proposed his thoughts and outlook on the future construction of company-level derivatives systems for securities firms. Mr. Shao's brilliant speech laid a solid foundation for the conference, giving attendees a deeper understanding of the topics and sparking anticipation for the subsequent discussions.

As the summit progressed, Mr. Zhao Yuanzhe, Executive General Manager at Ping An Securities, shared his insights on the core issues concerning derivatives trading and risk control, injecting new vitality and perspectives into the conference.

Drawing on his years of experience and practice at a leading institution, Mr. Zhao provided an in-depth analysis and discussion on the financial valuation system for derivatives trading, the management of pricing and valuation parameters for derivatives, the relationship between firm-wide risk control systems and derivatives risk control, how to build a firm-wide risk control system, and the difficulties and breakthrough strategies in system construction.

Next, Mr. Wu Zherui, President of the Information Technology Department at Minsheng Securities, brought a fresh perspective based on his practical experience in both domestic and international securities firms and investment banks.

Mr. Wu began by discussing the actual situations and problems encountered by top overseas investment banks in derivatives system construction over the past 20 years. He then shared his thoughts and experiences on common problems faced by large and medium-sized domestic securities firms, such as the alignment of middle and back-office with the front-office, organizational issues between IT and business, data and process governance, the differences in system development between sales & trading business and traditional brokerage, and the "build versus buy" debate. He concluded by stating, "Through frequent discussions with industry peers, and to borrow a phrase from a friend: referencing the development of sales and trading in overseas institutions, OTC derivatives are a type of institutional sales and trading business. The core business model is still the 'sales and trading' service system of professional institutions, i.e., a comprehensive sales system. Due to the current stage of development in China, the transition from pure channel-based brokerage to sales and trading is being done through OTC derivatives. In terms of business form, it is not a comprehensive sales system; in terms of systems, there are still heavy traces of brokerage systems."

Mr. Li Jing, Head of the Comprehensive Business Development Department at the FinTech Center of China Merchants Securities, shared his insights on the construction and outlook of the mid-end system for institutional business in securities firms.

Regarding the construction of the institutional business mid-end, Mr. Li proposed the concept of "one foundation, two platforms, three capabilities" for a unified, one-stop institutional financial service platform. This includes: one cloud foundation; a unified data platform and a technology platform for trading and computation; and three core capabilities in trading, risk, and investment research. He then shared his own thoughts and experiences on how to build this system.

Finally, Bachelier Technology's CTO, Chen Wei, and Chief Architect, Shao Baolin, introduced and shared insights on firm-wide risk calculation mid-platforms and cross-border swap businesses for securities firms, combining overseas experience with successful implementation cases from several large domestic institutions. They also shared Bachelier Technology's future technical path for joint research and development with securities firms, the respective roles of each party, and Bachelier technological preparations for this collaboration.

After the presentations, the attending guests from various institutions engaged in deep and enthusiastic discussions, sharing ideas and reaching a broad consensus. The summit concluded successfully in the glow of the autumn afternoon sun.