In-house system of the year: Citadel

Risk Awards 2017: Futuristic control centre has transformed dialogue between risk and business

Joanna Welsh, Citadel

It's fun to imagine how risk information will be visualised and shared in the future. It seems safe to predict the demise of ring-binders, folders and dog-eared print-outs covered in red pen and coffee rings, but what will take their place?

There may be a clue on the 37th floor of Citadel's Chicago headquarters, where the firm's portfolio construction and risk group monitors and manages exposures in real time using graphs and charts on wall-mounted touchscreens. It may sound gimmicky, but users say it has changed the way the team works and - crucially - how it interacts with the business.

"As a market-maker, we carefully manage our factor exposure and the risk centre provides a critical second level of monitoring, keeping track of our capital usage, the gross market value of our portfolio and our positions going into the close of every day," says Michael Hill, head of trading operations for execution services at Citadel Securities, the firm's market-making business.

The idea of having a physical hub from which to control risk was conceived three years ago, in early 2014, and the facility was designed and built internally in just nine months, opening its doors in October 2014. The focal points of the centre are two curved touchscreen displays – the larger one, measuring roughly 10 metres wide by three metres high, brings together information for the asset management business, while the smaller, with a width of around five metres, tracks the market-making activity.

As big as those displays might be, their boundaries are still finite. The challenge for Citadel is to identify the most relevant information across the many thousands of financial instruments and positions making up the firm's asset management and market-making businesses.

The on-screen content mirrors the three pillars of Citadel's risk framework: risk, stress and liquidity. Real-time visualisation capabilities are currently available for all asset classes within Citadel Securities and the firm is in the process of extending similar capabilities to the hedge fund.

"The risk centre is all about information, and our focus is on making sure the risk information is presented in a useful and impactful way. Given the risk centre's visualisation capabilities and the amount of data now available, we are able to assess the risk exposures of portfolio managers and market-makers more effectively, and we will continue to build on the current capabilities," says Joanna Welsh, chief risk officer (CRO) at Citadel.

By making risk information more readily available, the risk centre has enhanced our ability to manage real-time risk across our portfolios, and made our interactions with the portfolio construction and risk team more productive
Matt Hooker, Citadel

The vision for the risk centre came right from the top of Citadel, as chief executive Ken Griffin felt the need to make risk information more easily accessible and visually understandable. It was brought to fruition by head of global portfolio construction and risk Alex Lurye, who stepped into the new role of chief data officer last year.

The 30-strong portfolio construction and risk team is now headed up by Welsh, formerly CRO at Tudor Investment Corporation, who joined Citadel on January 3. The team includes risk managers, analysts, quantitative researchers and technologists who engage directly with business heads, senior management and the firm's portfolio committee.

"The risk centre has allowed risk managers to focus their efforts on deeper analysis of risk information rather than the production of it. The enhanced risk transparency has elevated the communication and discussion of risk information, both internally and externally," says Savo Bakrac, senior risk manager at Citadel.

The risk centre may be the focal point for the team, but its reach extends across Citadel's global operations. Risk managers can access live representations of the two wall displays from any location and individual business heads will interact with the risk team whenever either party deems it necessary.

The nature and content of this interaction may range from a discussion around the growth of a particular desk or strategy to the review of a team's strategy prior to an expected risk event. This proved to be particularly beneficial last year, as the industry was preparing for the impact of the UK referendum in June and the US presidential election in November.

"We use playbooks in connection with major market events that have the potential to cause volatility. The risk centre helped us review our playbook ahead of Brexit, and navigate the volatility before and after the vote," says Hill.

Citadel maintains robust procedures across the firm to ensure full separation between asset management and market-making, and this includes the risk centre. Physical access is limited to authorised individuals within the portfolio construction and risk team, and other staff are required to be accompanied by a member of the team to access the centre. Meanwhile, individual heads can only access information relating to their own part of the business.

"By making risk information more readily available, the risk centre has enhanced our ability to manage real-time risk across our portfolios, and made our interactions with the portfolio construction and risk team even more productive," says Matt Hooker, head of US trading for global equities at Citadel.