UK-based Xenomorph has just released a COM interface to its data management and analysis package, the Xenomorph System. COM is Microsoft’s standard component software model for the rapid development of applications from component resources, tools and interfaces. A COM interface can be accessed from Excel, Visual Basic, Delphi, Visual C++, and many other development environments.

What Xenomorph adds to the picture is that its single, easy-to-use interface can access data concurrently from a variety of datafeeds, such as Bloomberg and Reuters; positions data from Sybase or Oracle; or historical data stored in specialist databases, such as Fame, and Xenomorph’s own Xenomorph Database (XDB) format. Given that the Xenomorph System comes with data storage, data connectivity and data distribution built-in, risk managers, traders and IT staff can concentrate on adding business functionality, rather than focusing on implementing low-level technology for each application or risk management tool created.

“Our key strength is our proprietary object database,” says Brian Sentance, the firm’s managing director. It will store 300,000 years of data in 1GB of data, and is around ten to fifteen times smaller than some relational database implementations, he says. The XDB database format differs from other specialist time-series databases in that it is not limited to the historic storage of price or yield data. It can also store correlation matrices, yield curves, basket compositions and complex instrument data.

The system is primarily Excel-based, although all functions also have equivalents in Visual Basic and C/C++, and API. It has 150 querying functions. Excel gets its primary use in derivatives, says Sentance, but what he emphasises is the variety of data feeds available — five in all. He describes the database plug-ins as “very good for the integration of existing risk management and legacy systems into the whole analysis.” He adds: “It is important that we do not try and lock people in.”

Vendor reception

Data vendors initially adopted the attitude “why do we need you?”, says Sentance. But pressure from clients, and education by Xenomorph has gradually made them more conciliatory. On the relationship between data vendors and risk management vendors, Sentance says: “One of the key points is that we are data neutral. We find that any data vendor that is offering data analysis is only offering one source of data.” Xenomorph is about providing as much choice as possible for market data, but likewise for market analysis and integration, he insists.

Sentance describes the main functions of the system as correlation assessment, volatility assessment, and the integration of databases. This flexibility, and a centralised “high performance” system, are key to the firm’s battles with its competitors. Sentance sees Leading Market Technologies’ Expo and Inventure’s Ranger as the system’s main competitors. Other areas in which he argues that the system performs well in comparison to its rivals are its capabilities for storing correlation figures, new products, and market data.

He says: “What we are about is making it easy for risk managers, traders, and IT staff to build trade analysis and risk management tools. Ease of use is paramount, but so is high performance. We want to make it easy for traders to get high margin products out into the market; for systems professionals to quickly integrate these products into core risk management systems; and for risk managers to be able to analyse the risks inherent in these new positions.”

This ability to attain rapid data access and at the same time allow centralised risk control in an NT environment was expedited by the experience and expertise gained by founder and development director, Chris Budgen, while at Bankers Trust. At the time, BT was the most prevalent NT user. The requirements warranted a standalone company he believed, and thus what would become Xenomorph was born.

Budgen was joined by the firm’s consultancy director, Mark Woodgate, in May 1995, and the two used their own limited funding for 18 months of product development in a rented house in Stockwell, South London. They were joined a few months later by Sentance, who had been working for JP Morgan, developing option pricing models for equity derivatives.

The first sale was in mid-1996 — unsurprisingly to Budgen’s old colleagues at Bankers Trust, initially with just a few users. BT then bought a site licence in London for the equity and interest-rate derivatives desk, and this has been renewed every year since.

Xenomorph’s second client was Tokai Asia — a trader came over from Hong Kong, saw a demonstration in the trio’s living room, and bought the system, based on its flexibility and cost. Sentance describes this sale as “a bit of a boost” at the time. In 1997, the firm took its first office and employed its first staff. It now has 15 clients in 20 sites.

The firm’s sales have mainly been as a result of “word of mouth,” he adds. “Prior to this year, we haven’t gone out and done an active marketing campaign, primarily because we were wanting to grow the company and the product to a size that is capable of dealing with the demand we believe it will generate.”

Back to the future

Development plans until the end of this year will involve enhancements to the technology infrastructure. In the main, users of the system are currently quants, risk managers, and proprietary hedge fund managers. But Sentance says the firm wants to expand the audience for the product to those requiring a pre-packaged environment, in which users can scan between different data discrepancies, and also have trade capture and position keeping.

Xenomorph’s staff is working on an historic yield curve analysis module, linking interest-rate data with yield curve zero factors. These will be built from option models such as those from MONIS or TechHackers. This summer the firm will add extended database functionality with MS VBA — currently from Excel, but ultimately to be built by Xenomorph. Many vendors come to risk management after this stage. Xenomorph is “building from the ground up,” says Sentance.

The aims of the company include a target roster of 50 clients by the end of this year, which Sentance deems “easily achievable”. Next year Xenomorph will be aiming for “big markets”: hedge fund clients, in addition to which it will be aiming to expand into Hong Kong and New York. Meanwhile, a former Infinity employee and an ex-ABN Amro quant are among the firm’s most recent recruits, with more new staff expected later this year.

In terms of technology developments over the next few months, Sentance sees that COM and Visual Basic are key technologies in making their products “future-proof” and enabling clients to develop financial applications faster than ever before. Xenomorph is currently integrating the Microsoft Visual Basic engine throughout its product range, and is preparing the System to conform to the latest Microsoft database standard OLEDB (object linking and embedding databases).

Imperial origins

“We jokingly said it would be great to set up our own company, but never imagined it would happen eight years later,” says Sentance. The firm was started by Budgen and Woodgate, but the roots of the partnership go further back to Imperial College, London, and its Centre for Quantitative Finance.

Woodgate, Sentance and Matthew Skinner (now the firm’s sales director) were undergraduates on the electrical and electronic engineering course at Imperial. Budgen met the trio while taking classes on the way to a physics degree at Imperial.

Sentance and Skinner then went on to the Centre for Quantitative Finance under Professors Jerry Salkin and Nicos Christofides. Sentance was working on optimisation of interest rate management, and Skinner on interest rate and exchange rate modelling. Sentance subsequently joined JP Morgan’s equity derivatives pricing models group, while Skinner joined ING Barings as an equity derivatives trader, and was posted to Hong Kong — you might remember him from a much-published photograph in which he sported the famed “Nick Leeson is innocent” tee-shirt.

Budgen initially worked at Daiwa Europe, and moved to BT in 1995. He worked on technology with the interest rate and equity derivative quants, providing options analytics to the desk. Woodgate, on the other hand, worked at Logica for seven years prior to joining. He worked in the space and defence group on MoD projects with Sybase and Unix.