Calypso Technology, a multi-asset-class trading and risk management software company, has purchased Codefarm, whose flagship Galapagos platform allows for the construction and management of collateralized debt obligation (CDO) portfolios. Terms of the deal, announced today, were not disclosed.

Under the agreement, Codefarm founder and managing director Jeremy Mabbitt becomes VP of technology for Calypso’s new Galapagos unit. Codefarm’s marketing director, John Mooren, and head of sales, Steve Gibson, are now Galapagos’ general manager and VP of sales, respectively. Codefarm’s research and development office will remain in Brighton, U.K., while its New York and London employees are transferring to Calypso offices.

Codefarm and Calypso share a “handful” of clients, according to Mooren. After those customers create the CDO portfolios with Galapagos, they use Calypso to perform position management, post-trade processing, accounting, recordkeeping and risk analytics. “Calypso is broader in its application and target markets,” explained Mooren. “Its sponsors include front-office business heads, heads of operations, IT managers and middle-office executives.”

Citing “clear synergies” from the deal, Charles Marston, chairman and CEO of San Francisco-based Calypso, pointed to an opportunity to develop products that “relieve market pain in collateral debt obligation restructuring and risk mitigation.” Added Marston, “In our analysis of Galapagos we concluded that the wide applicability of this unique technology made it an excellent fit” with Calypso’s trading and risk platform.

Most banks use a combination of proprietary and third-party tools to structure their CDO portfolios. Codefarm’s dozen investment bank clients include KBC, Royal Bank of Scotland, Merrill Lynch & Co. and UBS.

Founded in 2001, Codefarm applies evolutionary computing--a branch of artificial intelligence that solves optimization problems through iterative progress--to CDO portfolios. Named after the islands where Charles Darwin developed his theory of evolution, Galapagos converts the specifications of a synthetic CDO portfolio into computer code.

Using the CDO platform, portfolio managers and structurers can build portfolios by uploading existing positions and market information such as spreads, ratings and liquidity. The system then suggests the best possible trades given the managers constraints. Codefarm applies simulation-based pricing--using a model from the credit derivatives valuation service of Fitch Ratings--to optimize the portfolio. Users can also adopt their own models.

Calypso, which has offices in Johannesburg, London, Mumbai, New York, Paris, Frankfurt, Singapore, Sydney and Tokyo, has about 90 clients including investment banks, regional banks, insurance companies, hedge funds and asset managers. For Codefarm, Calypso’s global reach was key to the agreement. “We are already expanding the Galapagos platform into new markets,” said Mooren in a prepared statement, adding that Calypso “has a solid understanding of the Galapagos offering and the marketplace.”

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