Reval hits the million-trade mark. But the true sign of success will be when it reaches its next million-trade milestone.
Reval recently reached its 1 million-trade milestone for corporate OTC derivatives transactions. Congratulations are certainly in order: The company has scratched out a market for itself and, as a result, become its market leader. This was no small challenge to overcome. Unfortunately, a bigger challenge lies ahead.
Having been founded in 1999, this means it took just over 10 years to get there. Much of the take up has come in the last several years, however. “In just three to four years, we’ve seen the flow of trades grow from about 60 thousand per year to about 300,000 trades per year,” reports Reval Chief Operating Officer Philip Pettinato. At that rate, Reval would reach its second million trade milestone over the next three and a third years.
What we should know before 2014
If that is the case, it will prove that Reval’s SaaS platform 1) continues to outpace its rivals in offering superior derivatives transaction valuation, accounting and risk management support to corporates; 2) that it had fended off the non-corporate players in this space who move down market; and 3) that a market migration to central clearing platforms has either not been severe, or that Reval has evolved to serve its customers as they migrate to these platforms. The question of customers being willing to integrate with a SaaS solutions will be no longer relevant: almost everyone seems to be heading into the cloud.
Regarding point one, if the trade growth Reval has experienced continues, it will become an even bigger target for SunGard and Wall Street Systems to close the gaps in functionality in their offerings. Similarly, its success in building up the corporate market niche will bring in other players, including those from the hedge fund arena. Already, support for OTC transactions is being offered by custodial banks and broker-dealers, often as an adjunct to their offerings to funds and other end-users (see Citi profile) or part of a rethinking of prime brokerage (see item on Goldman Sachs).
Will Reval prove that its superior understanding of corporate idiosyncrasies, including on the accounting front, will keep the non-niche players from luring away its customers? And if this is not enough, all these players will have to position themselves successfully as derivatives markets evolve toward exchanges, central clearing houses, and hybrid clearing platforms of various forms—if indeed they do.
While we hope to be able to congratulate Reval on its 2 million-trade milestone before 2014, since it is difficult to predict if the impact of these market forces will be felt over the next 3-4 years or the next 10-15, it could well face these questions again when we do.