Financial Product Development: Gaining a Competitive Advantage in a Global World 1/27 Warren...

Financial Product Development: Gaining a Competitive Advantage in a Global World

1/27Warren Edwardes


Warren Edwardes, ceo, Delphi Risk Management Ltd

• Presentation to MEFTEC 2006• Bahrain, Tuesday 14 February 2006• Full speech on: • dc3.co.uk/creative.htm and

dc3.co.uk/innovation.htm• Islamic banking news: dc3.co.uk/ibnews


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Key financial instruments– This article and

speech is based on chapters 2 and 3 of the book:

– "Key financial instruments: understanding and innovating in the world of derivatives" (Financial Times Prentice Hall)


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Key financial instruments

• How to capture the big new IDEA?

• Seven Pillars of Financial Innovation


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How to capture the big new IDEA?

• Why Creativity? – If you try to do things, sometimes you’ll get it

wrong.

– If you execute everybody who tries to do something and gets it wrong, pretty soon you’ll have nobody who tries to do anything. That’s exactly the wrong way around.

– Peter Burt, chief executive of Bank of Scotland


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• But Creativity is not about inventing products from scratch.

• Many useful financial products are in use elsewhere or went out of use perhaps because of regulation or tax considerations.

• "guerra de supercuentas" or the super-account war in Spain

• "current account mortgages" were launched by Virgin Direct in the UK – the Virgin One Account.


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• Always waiting for another firm to introduce a product first in a game of catch-up may be fine, but short-sighted, in retail financial products.

• Plain-vanilla or standard financial product expertise is simply not good enough in the capital markets.


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The Big IDEA - Impossible

• Think like a child

• Polaroid Case

• New entrants


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The Big IDEA - Disasters

• PostIt Note• SCOUT• Remember the two benefits of

failure. • First, if you do fail, you learn

what doesn't work; • and second, the failure gives

you the opportunity to try a new approach. - Roger von Oech


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The Big IDEA - Everywhere

• Velcro case

• Walking

• Conferences


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The Big IDEA - Archive• Write it down

• Everything has been thought of before, but the problem is to think of it again. – Goethe

• the Delphi Thought Pad.

• Beware of leaking information



The Big IDEA

• The Big IDEA - Impossible

• The Big IDEA - Disasters

• The Big IDEA – Everywhere

• The Big IDEA - Archive



Seven Pillars of Innovation

• Six people seated around the walls of a darkened room. In the open middle space is a chair.

• Who finds it? Those that sat still and philosophised about where chairs are usually placed in rooms?

• The innovator who would locate it is the one who'd get up, walk and stumble until he discovered it.

• Nobody ever found anything whilst sitting down. So QED don’t be afraid to stumble. - Charles Kettering

• Ease of entry / Copyright



Seven Pillars of Innovation

1. Competitive Innovation2. Regulatory Innovation3. Accounting Innovation4. Taxation Innovation5. Religious Innovation 6. Ignorance Innovation7. Technological innovation



Seven Pillars of Innovation 1

• Competitive Innovation

• Price• Service




• Regulatory Innovation• Basel / Basle II• Credit derivatives• Insurance derivatives• Hybrid securities

– Look like bonds for investors– and equities for Tier 1 Capital




• Accounting Innovation• IASB• Does Accounting

treatment reflect value?




• Taxation Innovation• Capital Gains Tax – zero

coupons• Dividends• Tax Changes• Retrospective legislation




• Religious Innovation • Ethical Funds• Usury Laws• Islamic Banking




• Ignorance Innovation• Just cheating• Bankers Trust /Proctor

and Gamble / Gibson Greetings

• Structured Financial Products




• Technological innovation• Cash Points• Computer software for

derivatives• Credit risk valuation• Internet• Visit the Exhibition




Warren Edwardes, ceo, Delphi Risk Management Ltd

• Presentation to MEFTEC 2006• Bahrain, Tuesday 14 February 2006• Full speech on: • dc3.co.uk/creative.htm and

dc3.co.uk/innovation.htm• Islamic banking news: dc3.co.uk/ibnews

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Financial Product Development: Gaining a Competitive Advantage in a Global World 1/27 Warren...

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