Risk Management Goes Real-Time
Risk Management Goes Real-Time
January 11, 2010
With the demise of Lehman Brothers, the absorption of Bear Stearns and the billions lost in the Bernard Madoff Ponzi scheme, risk management is no longer a back office, end-of-day process.
Today, with the help of cutting-edge technology, risk management is real-time.
In interviews with Securities Industry News, industry executives and risk management technology providers at the outset of January described tools and techniques that are improving risk management by Wall Street firms.
Complex event processing.This is a growing field of software designed to allow firms to describe and process complex market conditions, patterns and events in the form of messages which can be processed extremely fast and in high volume. This makes it ideal for risk management, said Don DeLoach, president and CEO of complex event processing systems provider Aleri.
"If you think about how risk has changed, the idea of doing an end-of-day recap and analyzing what a firm's exposure is, has given way to a need to look across various trading desks, look across the markets, understand specific trading actions, or even specific payment flows or actions related to liquidity all in the context of a high-volume, high-velocity market where things can change in a minute, much less an hour or day."
CEP, DeLoach noted, is ideally suited to bridge various trading desks in an organization or even to bridge various payment hubs and cash systems together in order to analyze enterprise-wide risk, in real time or on demand or real-time basis.
Therefore, banks and trading firms "can adapt to the changing nature of the risk they're concerned with without having to rebuild all of their systems from scratch," said DeLoach.
Moving risk to the front office. Accenture has seen investment banking clients moving the calculation of risk to the front office, where trading takes place, said Grau.
"You are not moving data from various systems into a centralized risk reporting tool, you are invoking the calculations up in the front office where the risk calculators exist and where the pricing models and data exists," said Grau. "That's a brand new way of doing things in the world. There are various tools in the marketplace that have evolved in the last two years that allow you to do this, such as complex event processing."
In addition, said Grau, the industry has seen a lot of real-time valuation occurring within the front office systems. "We're seeing pricing models running where the data and positions reside in the front office systems," he said. "Those calculations are being run with middleware commands. You send the command out, it runs the pricing model and brings prices back."e_SClBScrubbing and managing data."One of the things we've found is that managing risk is all (centered) around data management. Bringing all of the (market) data pieces together in order to manage risk across the firm is a significant challenge," said Adam Sussman, senior analyst of the Tabb Group.
Firms such as ITG, which operates the Posit trading venue, use Aleri's CEP technology, for instance, to try and pull in market data from all sorts of equity exchanges, in Europe.The data gets captured, aggregated and then normalized into one consolidated stream of data.
