Xenomorph's COM interface for its Xenomorph System data warehouse became fully operational in January. For data warehouses, Microsoft COM is the first in a series of Microsoft innovations that will herald the age of mass-market object-orientated warehousing. It is also popular with software vendor clients because it doesn't restrict them, and facilitates greater connectivity.

Object-oriented warehousing provides more than just greater functionality - it provides risk managers with the ability to produce their own models without having great technical expertise. Object-oriented implementation of Visual Basic programming is one of the driving forces behind the rationalisation of data warehousing that is being motivated by cost cutting.

The next step along the path to greater functionality is OLEDB (Object Linking and Embedding DataBases), and the Xenomorph System will have this implemented by the end of Q3 this year. This is a Microsoft database standard, and is the next standard up from ODBC, which only speaks to relational databases. All this builds on the basic Xenomorph product.

Brian Sentance, commercial director at the firm, says: "Our key strength is our proprietary object database." He says this will store 300,000 years - or 1 gig - of data, but is ten or fifteen times smaller than relational databases such as Oracle or SQL. He calls the Xenomorph System a high performance database because, unlike a Fame database, for instance, it can store correlation matrices, implied vol data or a region of a spreadsheet, not merely numbers.

The system is primarily Excel-based, with all functions having equivalents in Visual Basic and C/C++ 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 - there are five. He says the database plug-ins are "very good for the integration of existing risk management and legacy systems into the whole analysis." Adding: "It is important that we don't try and lock people in."

Initially data vendors had an attitude that was basically "why do we need you?", he argues, but following pressure from clients they have been gradually 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 offering data analysis is only offering one type of data." Xenomorph is about providing as much choice as possible for market data, but likewise for market analysis and integration, says Sentance.

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

Link tank

Sentance says: "What we are about is developing links between trading tools and the risk managers...with a flexible database like ours, traders can use Excel spreadsheets. IT are happy because there is central access, and so are the risk managers because they can check the products. Traders have only got a certain window where they can make a lot of money. The traders want to trade a product, but can't because the IT department are telling them they can't because it isn't in the institutional IT model. Its fitting square pegs into round holes."

This need to attain quick data access and at the same time allow centralised risk control in an NT environment was expedited by the experience and expertise which founder and development director, Chris Budgen, gained while at Bankers Trust. BT was the leading user of NT at the time. He believed the requirements warranted a standalone company, and thus what would become Xenomorph was created.

Joined by Mark Woodgate in May 1995, they used their own limited funding for 18 months of product development in a rented house in Stockwell, South London. Sentance, who had been working for JP Morgan developing option pricing models for equity derivatives, joined a few months later.

In 1997 the firm took its first office, and employed its first staff other than the founders. The first sale had been in mid-1996 - to Chris' old colleagues at Bankers Trust - with just a few users. They bought a site licence in London for the equity and interest-rate derivatives desk - a licence which has been renewed every year since. They now have 15 clients in 20 sites.

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 because of its flexibility and cost. Sentance describes this sale as "a bit of a boost" at the time. The sales have been as a result of "word of mouth," says Sentance. "We haven't gone out and done a marketing campaign, primarily because the product was still developing, but also because we wanted the staff to understand the product."

The future

Development plans until the end of this year will involve enhancements to the technology infrastructure. But the main aim is to build a pre-packaged environment, because the system is currently used mainly by quants, risk managers, and proprietary hedge fund managers. Sentance says they want to expand the audience for the product, to people who will want a pre-packaged environment, in which users can scan between different data discrepancies and also have trade capture and position keeping.

In addition, Xenomorph's staff are working on a 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, that will be from Excel at the moment, but will be built by Xenomorph. Sentance says a lot of vendors come to risk management as something they build after this stage. In this respect Xenomorph, he says, is "building from the ground up".

The aims of the company are to reach towards 50 clients by the end of this year, which Sentance considers "easily achievable". Next year they will be aiming for "big markets" - hedge funds. Xenomorph will also be aiming to expand to Hong Kong and New York. Meanwhile, an ex-ABN Amro quant and former Infinity employee joined the firm recently, and more new staff are expected later this year.

"We jokingly said it would be great to set up our own company, never imagining it would happen eight years later," quips Sentance. The firm was started by Chris Budgen and Mark Woodgate, but the roots of the partnership go back much further - and involve Imperial College, London, and the linked Centre for Quantitative Finance.

Mark Woodgate and Matthew Skinner were undergraduates on the same course at university - electrical and electronic engineering - while Brian Sentance took electronic engineering at Imperial at the same time. Meantime, Chris Budgen bumped into the trio while taking classes on the way to a degree in physics at Imperial.

Sentance and Skinner then went on to the Centre of Quantitative Finance under Jerry Solkin. Sentance worked on optimisation to interest rate management and Skinner on interest rate and exchange rate modelling. Afterwards, Skinner joined ING Barings as an equity derivatives trader, and was posted to Hong Kong -does the photo of him wearing a "Nick Leeson is innocent" T-shirt ring any bells? - while Sentance joined JP Morgan's equity derivatives pricing models group.

Chris Budgen began at Daiwa Europe and joined Bankers Trust in 1995. He worked with the interest rate and equity derivative quants, providing options analytics. Mark Woodgate, on the other hand, had been at Logica for seven years in the space and defence group, where he was working on MoD projects with Sybase and Unix.