From Russia with code

Date: June 2002
Publication: Institutional Investor
By: Jeffrey Kutler

Egar Technology bills itself as one of the fastest-growing software and services providers to Wall Street. The company has supplied trading and risk management systems to Bear, Stearns & Co., CIBC World Markets and Societe Generale's Fimat USA subsidiary, among others. Through an affiliate, IVolatility.com, it delivers market data and analytical tools to many of the biggest derivatives trading desks.

But New York sales office is just a front. All but 12 of its 122 employees work at the company's systems development and engineering hub — in Moscow.

Though India has gotten much notice as a hotbed of offshore software development and support, Egar deemed Russia a better fit.

Moscow is teeming with scientists and engineers who were left underemployed by the passing of the cold war, says Egar CEO Ravi Jain. One of them, financial engineer Mark Ioffe, spent 25 years working for the Moscow Research Institute, a division of the Russian Department of Aviation, where he developed missile guidance systems. He now applies his mathematical expertise toward developing models and formulas for derivatives transactions.

Ioffe and other Egar recruits, most holding advanced degrees, nominally work for a Russian-domiciled subsidiary, but they are busy transferring technology to the West. "I couldn't compete for people in India. We had a much better chance in Russia," Says Jain, 40, a former head derivatives trader at Republic National Bank who launched 'the technology company in January 2000.

One of India's attractions had been its English-speaking population, but Jain, himself of Indian descent, says the Russian talent pool is superior — and speaks English. But it also happens that Jain's co-founder and chief technology officer, Gena Ioffe (Mark's nephew), is Russian. The 42-year-old Ioffe, who developed cutting-edge technology in ''the 1990s at transaction systems FNX and at a company he started, Delta Analytics, earned his BS degree in computer science and an MS in applied mathematics from Moscow State University.

"Russia has gotten very hot for outsourcing," Jain notes. U.S.-based companies like Boeing Co., Intel Corp. and Microsoft Corp. are there, but Jain says: "We're unique as a capital markets company. For complex applications like derivatives, Russia is a perfect skill set — people all over the place with master's degrees in math, physics and engineering."

Jain says that Egar's Moscow office could be an eventual base for expansion in Europe, but for now the company remains focused on the U.S., targeting small and midsize financial institutions as well as the specialized trading and risk management departments of large banks and corporate treasuries.

Egar sells itself as neither a pure vendor of systems nor a pure consulting firm that others' systems. "We can do 90 percent our products and 10 percent custom delopment, or the reverse, or mix and anywhere in between," says Jain. He is confident that the firm can maintain that flexibility— as long as the Russians keep churning out the code.

Jeffrey Kutler

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