In terms of its age, SuperDerivatives Inc. is a start-up, but in terms of its financial performance (on the basis of market estimates) the company is already standing on its own feet. The company, which began activity in 2000, develops and markets software for the pricing and management of risk for all types of options. The company’s systems are based on mathematical models developed by company founder, president and CEO Dr. David Gershon.
“This is a very accurate engine for pricing options,” says Gershon. “The tool used by market players until now was derived from the Black and Scholes model, which is very nice mathematically, but not very accurate. This was revealed in the terrible New York stock market crash of 1987.”
After SuperDerivatives launched a number of web-based systems for real-time calculations of options pricing, this year it launched a service for monitoring options and structure deposits portfolio for banks and venture capital funds.
“Someone trustworthy and free of interests was needed to monitor the options, in the wake of the many scandals in the field in recent years,” said Gershon. “We’re an impartial third party (after the customer and the bank - M.A.), and the prices we set for options are real and constitute a benchmark.”
SuperDerivatives’ customers include some of the world’s largest banks, such as Deutsche Bank (NYSE: DB; LSE: DBK; XETRA, AEX, SWX, ATX: DBKG), Credit Suisse Group (NYSE: CSR; SWX: CSGN; XETRA: CSGZ), HSBC (LSE:HSBA; NYSE:HBC) and JP Morgan Chase & Co. (NYSE:JPM); as well as leading international accounting firms; central banks, such as the Bank of England and Bank of Israel; and corporations, such as Microsoft Corp. (Nasdaq:MSFT), IBM Corp. (NYSE:IBM), Alcatel (NYSE:ALA; Paris: CGEN); Ford Motor Co. (NYSE:F; LSE:FDM), Sony Ericsson Mobile Communications, Caterpillar Inc. (NYSE:CAT), Coca-Cola Co. (NYSE:KO), Xerox Corp. (NYSE:XRX), and PSA Peugeot Citroen SA (Paris; LSE: PEU).
The company’s Israeli customers include the large banks, Israel Chemicals Ltd. (TASE: CHIM), Cellcom Israel Ltd., NICE Systems Ltd. (Nasdaq: NICE; TASE: NICE), ECI Telecom Ltd. (Nasdaq: ECIL), Delek Group Ltd. (TASE: DLEKG), Fishman Holdings, Oil Refineries Ltd., and Israel Aircraft Industries Ltd. (IAI).
SuperDerivatives also has large Arab customers in Jordan, Saudi Arabia, Kuwait, Bahrain, Iraq, Dubai, and customers in exotic locales such as Mongolia. The company’s first investors include former Bank Hapoalim shareholders Lewis Ranieri and Scott Shay, through Hyperion Partners.
In two months, SuperDerivatives is due to launch a new system called SD-Corp, designed for commercial and industrial companies. The system will enable companies to simultaneously manage foreign currency, interest rates, energy and goods risks, and even calculate the value of their employee options.
“This system gives an accurate picture of all exposures in every field,” says Gershon. Until now, each type of exposure required a separate system. “This system has been tailored to companies’ needs, because international corporations working in different currencies and interest rate gaps in different countries. Until now, there was no such comprehensive device. This will revolutionize the market.”
Gershon also talks about plans to convert all options activity into an electronic arena, because, however odd it sounds, until now options trading has mostly been by telephone. “My vision is to develop a platform that will link all our products, with the ability to price all products, the possibility of electronic trading in all products, and enabling communications between people, the transmission of news information. In short, to develop a total system for options trading,” he says.
Markets sources estimate that by early 2006, SuperDerivatives had 10,000 customers and over $100 million in sales a year.
“The uniqueness of our business model is that we aren’t selling a product, but a one-year automatically renewable license. The advantage for the customer is that there is no need to pay a large lump sum, but annual installments, which do not put a burden on expenditures. We have almost zero customer abandonment. The few cases were banks that merged with other banks that were already our customers, and cases of change in ownership and changes in company arrangements, but these are isolated cases. Therefore, each new customer is a net increase in customers and revenue. Existing customers usually buy our other systems, thereby boosting our revenue. On the basis of our business model, we have a cash flow for eternity, so we’re able to invest in company development as well.”
SuperDerivatives is constantly expanding its basket of services and customer base, and is also hiring, after over 50% growth over the past year. Over the next six months, the company plans to hire almost 70 employees in Tel Aviv, including software engineers, network engineers, algorithm writers, options traders, customer services staff, and sales and marketing staff.
Published by Globes [online], Israel business news - www.globes.co.il - on August 30, 2006
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