IBM Impact Session 1978v1cj

© Fifth Third Bank | All Rights Reserved
Fifth Third Integrates Real Time Derivative
Market Data Within Enterprise
IBM IMPACT 2009 Conference

2 © Fifth Third Bank | All Rights Reserved
IBM IMPACT 2009 Conference
Impact Session ID 1978
Presented By
Cara Jonas
Fifth Third Bank, Capital Markets IT
Assistant Vice President/Project Manager
Karen Holmes
IBM Software Group, WebSphere Front Office
Financial Markets
Sales Representative

Agenda
Who Are We? Fifth Third Bancorp
An Idea is Born
Derivatives 101
Calling All Vendors
IBM WebSphere Front Office Solutions
Market Data Integration Details
Benefits
Lessons Learned
System Demonstration
Looking Forward

Who Are We?…Fifth Third Bancorp
FL
OH
GA
IL
IN
MO
PA
WV
NC
MI
TN
KY
Financial Services
company headquartered
in Cincinnati, Ohio since
1858
16 affiliates
1308 Banking Centers
2350 ATMs
Known for superior
customer service
and quality

More Than Just a Bank!
Consumer Lending
Mortgages and Home
Equity lending,
educational loans
Investment Advisors
Investment alternatives
for individuals,
companies, and not-
for-profit organizations.
Fifth Third
Processing Solutions
Electronic funds
transfer services and
merchant transaction
processing
Commercial Banking
Banking, cash
management and
financial services to
business, government
and professional
customers.
Branch Banking
Deposits and customer
loans and leases.

Commercial
Foreign Exchange
Interest Rate Derivatives
Commodities
Enterprise Risk
Credit Risk
Market Risk
Treasury
Balance Sheet Hedging
Securitizations
Capital Markets IT
Investment Operations and Technology
Investment
Operations and
Technology
Securities
Services and Trust
Operations
Brokerage
Operations
Treasury
Operations
Trust Application
Management
Brokerage/Capital
Markets
Application
Management

And Then There Was….An Idea!
2005
Market Risk
Software
Contract
Signed
2006
Market Risk
Foreign Exchange
Implementation
Begins
2007
Market Risk
Foreign
Exchange
Integration
Complete
Market Risk
Interest Rate
Derivative
Integration Begins
2008
We should use
this to improve
our Derivative
Pricing at deal
execution!
2009
Market Risk
Interest Rate
Derivative
Integration
Complete

The SOA Journey Begins
Fifth Third needed a real time market data solution to facilitate the pricing
of Interest Rate Derivative products.
This functionality was critical to enable the Bank to negotiate better
pricing on Interest Rate Derivative products executed with various
dealers.
The solution is also a critical building block to future revenue streams
and cost savings.
The data needed to be integrated into the existing Market Risk
application.
SOA was the answer!

Derivatives 101
What is an Interest Rate
Derivative?
— An interest rate derivative
(IRD) is a derivative where
the underlying asset is the
right to pay or receive an
amount of money at a given
interest rate. They are also
commonly known as ‘Swaps’.
— They are used to hedge risk
or to exchange a floating rate
of return for a fixed rate of
return. Specifically, in this
case, to help Commercial
clients lock in fixed payments
(and hedge risk) on floating
rate real estate loans.

In Other Words…
Floating rates are
the lowest, but
what if rates go
up? And how do
I plan my
cashflow for
variable monthly
payments?
We need
more office
space!
We can give
you a loan to
build that
new office
building.
We can ‘swap’ your
floating rate loan.
You’ll be protected
if interest rates rise
and your monthly
payments will be a
preset amount.
It’s like
the best
of both
worlds!
1 2 3
4
5

Portfolio consists of ~6000 Commercial IRD deals. These deals are
done ‘back to back’ to reduce risk exposure in the portfolio.
Total notional amount of IRD deals is $30B with Weighted Average Life
of ~50 months
Currencies include USD, CAD, EUR, GBP, JPY, MXN
Specific IRD deal types include:
— Vanilla swaps (amortizing, basis, bullet)
— Caps
— Floors
— Collars
Required market data included:
— Currency yield curves
— Cap volatilities
— Swaption volatilities
— Total < 5000 securities
Business Background

Calling All Vendors…
Identify Market Data Provider
— Bloomberg (BBG) data was selected based on bid/ask spread pricing criteria and available
contributors
— Bloomberg Bpipe On Demand (Bpod) was available tool for real time integration
Design Integration
— Existing Market Risk application did not have available BBG integration. Team decided to
leverage the existing Reuters RMDS integration for the Market Risk touchpoint
— GAP: SOA integration needed to translate from Bpod into Reuters RMDS
Selection Criteria
— Technical Proof of Concept Participation
— Maturity of Product(s) and Robustness of Solution Suite
— Overall Cost of Ownership
— BBG Relationship and Integration
— Geographic Location

And the Winner Is…
IBM (InfoDyne) WebSphere Front Office for Financial Markets
— Willing to participate in technical proof of concept
— Full suite of solution capabilities (including application hosting, monitoring/event
management, and upgrade management)
— Proposed Costs within acceptable range for Project metrics
— Certified platinum BBG partner
— Chicago based

Market Data Integration Project Timeline
2007 2008 2009
First IBM
Contact
Technical
Proof of
Concept
Contract
Negotiation
Hardware
Installed
Market Data
Integration Project
USD
Integration
Live
Market Risk Interest Rate
Derivative Integration Project

Market Data Integration Project Approach
Technical Proof of Concept
— Demonstrate technical components and proposed integration prior
to final contract
Integration and Contract Considerations
— Hosted vs In House
— Operating System (Linux vs Windows)
— Solution Partnership Program Level?
Phased Implementation
— USD first (80-90% of total portfolio); followed by remaining
currencies
— Delivery of full USD functionality pending two software
enhancements:
– Automation of Convexity adjustment
– 1M basis Prime and Muni curves

Project Organization Chart
Cara Jonas
Fifth Third
Project Manager
Melissa Scarborough
Fifth Third
Business Analysis
Allen Campbell
Fifth Third
Technical Services
George Hilliard
Fifth Third
Technical Services
Fifth Third Steering
Steve Randle-Commercial IRD
Hal Coffey-Market Risk
IBM Implementation
Team
Bloomberg
Implementation Team
Derivative Traders
Fifth Third
Commercial Front Office

Benefits
Saving a percentage (1-2 basis points) on each new deal by
enabling real time mark to market pricing comparisons and
reducing the dealer spread
Estimated $500K-$1M each year
— Project IRR > 600%
— Payback in just over 1 yr
SOA architecture in place to build future expansion of
market data across other product types and lines of
business
Ability to handle increasing volumes of IRD deals

Lessons Learned
Technical Proof of Concept was key
Get a ‘partner’…..or 2!
AND make sure there is consistent cross team communication.
Market data is very complex….get your requirements early!
Heavy Reliance on multiple internal teams ‘drove’ the timeline
Multiple hop integration created additional roll out complexity
Know your Internal Security requirements early

System Demonstration

Looking Forward…the Future of SOA
Expand footprint of SOA and real time market data
flowing into the Enterprise:
— Maximizes Enterprise consistency and quality
— Minimizes Enterprise contract costs
— Reduces overall IT support costs
Address Change Management and Adoption issues
— ‘I need a different kind of market data’
— ‘My business is different, special, etc’
Build/Buy in house IRD system

SOA Challenges
Resistance to losing existing market data connections and
sources (trading badge of honor)
Latency requirements
Consistent market data requirements across different lines
of business
Who owns the integration? Who supports? Who is
responsible for the license and maintenance fees?
Defined technical standards

Questions

IBM Impact Session 1978v1cj

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