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Pushing the Boundaries in Capital Markets

When Nivaura's team first shared their vision for the startup, people thought they were crazy. One senior banker even told them to see him for jobs when Nivaura failed! Read the full story below.

When we first told people about what Nivaura planned to do, they thought we were crazy. One senior banker even told us to go and see him for jobs when Nivaura failed!

The problem is we were focused on innovating in the capital markets, a massive industry with a huge amount of complexity requiring expertise and experience across many disciplines to do anything meaningful and impactful. There has been plenty of innovation in areas of retail banking and wealth management over the last decade, but capital markets, and in particular primary issuance, remains largely untouched. When we first had our idea on paper people just didn’t think what we were planning was possible, let alone by a startup.

Our vision was to create an on-demand end-to-end solution for the issuance and administration of financial instruments. Anyone working in this space will know that achieving this involves innovating across finance, law, regulation and technology. In addition, there are multiple intermediaries, and information exchange operates through entrenched processes, technology and user psychologies, making the barriers to entry high in terms of cost and effort.

We quickly realised that trying to convince people in financial services of the benefit of what we wanted to do was fruitless, so we decided to focus on building our core product to demonstrate our vision.

During the year we spent designing, developing and testing a functional solution undercover, we worked with a few key collaborators and partners who believed in us. One of these key people who is now an advisor and mentor to us is Alan Morgan, who previously spent 28 years at McKinsey & Co where he headed their financial services practice in the UK, Europe and the Middle East, then founded London based MMC ventures and his personal fintech advisory and investment firm, Adfisco. In early discussions his view was that “Nivaura’s solution is to capital markets as self-service platforms are to wealth management”. Alan gave us confidence that we were on the right track.

In mid-2017 we felt we achieved our goal of a minimal viable product that demonstrates the operational benefits of our system and so we decided to come out of stealth, supported by some of our high profile collaborators and partners. Today, Nivaura provides technology for faster, cheaper and compliant on-demand issuance and administration of financial instruments. To top this off, we are not only offering a technology solution, but have also gained MiFID and CASS regulatory permissions through the UK’s financial regulator, FCA, to enable the execution of instruments and also hold client money and assets. At the moment these permissions are restricted until we fully demonstrate the compliance aspects of our business and operations. Essentially, we go beyond standard thinking in capital markets i.e. Straight Through Processing (STP), to a model of total vertical integration.

The idea came from personal experience. Before my colleagues and I started the company, we worked in finance and technology. After a certain point I began to work independently helping clients issue simple or structured debt. What I noticed is that because of the complexities around the issuance of financial instruments, and the added cost and complexity of ongoing administration, most small businesses had a really hard time accessing such sources of capital. The costs were so high that they had no chance of raising money without working with third parties and paying a number of upfront fees. Most investment banks and intermediaries also cannot service small businesses and/or small deal sizes due to their fixed internal costs, making smaller deals unprofitable. Thus SME debt is a hugely underserved market in capital markets – not because of a lack of demand – but because of high servicing costs and little or no marginal benefit through economies of scale.

Nivaura was born to fill this gap in the market.

As I mentioned earlier, we worked with a few select partners to date, all of whom made it possible for us to push through the complexities in this industry and get to the position we are in now. For example, we would not have released our product so cost effectively in such a short time if it was not for the help we received from our early supporter Microsoft, and the access to key service providers that they enabled. As an example, one of our important partnerships is with Moody’s Analytics, a leading player in investments and capital market analytics. This relationship was a direct result of the Microsoft Innovation Summit that took place in March 2017. Today, we have access to data and models offered by Moody’s Analytics, providing essential aspects for our pricing engine, which is a core part of the issuance process. We also benefit from their support in terms of integration and ongoing collaborations for commercialization.

As well as helping us build critical partnerships, Microsoft has also helped with our huge infrastructure requirements.

But more fundamentally, Microsoft are good at identifying crazy ideas that might be viable if taken up by the right team at the right time. When we came to them, rather than telling us we were doing the impossible, they took interest, found our approach intriguing, and worked hard to support us.

Due to our significant complex infrastructure needs, essentially offering a regulated SaaS system for investment banks, exchanges, brokers and corporates, we needed partners who deeply understood a lot of these complex areas. According to FCA guidelines, using Cloud in capital markets has certain requirements. Microsoft recently published a paper on enabling compliance, and how Cloud services can align with the requirements of capital markets. This is one of the key reasons many financial services firms are moving their infrastructure requirements to Cloud infrastructure such as Azure. The work already done by Microsoft meant we could accelerate our live testing as a regulated firm on Microsoft Azure. While Nivaura is internally developing machine-learned models for asset structuring, we are also looking to other aspects of Microsoft services to simplify workloads, such as Microsoft’s Machine Learning Studio and Cognitive Services.

In addition, while Nivaura’s technology can operate as a centralized system, to issue and administer securities using a traditional financial services infrastructure setup, which we call the “Control Solution”, we’re also executing test cases that leverage an open public blockchain infrastructure for registration and custody of client assets and money, which we call the “Experimental Solution”. Being part of both the first and second FCA regulatory sandbox cohorts, we are testing this solution in a live environment. Our goal is to push the boundaries of capital markets technology beyond automation and rethink the current value chain. Microsoft’s significant offering of tools and services for blockchain infrastructure also makes for a great collaborative relationship.

At Nivaura we combine research-based academic culture with commercial discipline. It is this combination that I feel allows us to push the boundaries on what is considered “possible” in the capital markets, and yet still be seen as a startup with immediate commercial viability by our early collaborators and investors. While we are now working to further refine and commercialise our product, we are also making sure this is aligned with our mid to long term strategy, which can seem a bit like science fiction, so we are keeping that under wraps for now.

Get to know Dr. Avtar Sehra, CEO and Chief Architect of Nivaura