Risk 25 firms of the future: Technology

New regulation will force banks to make dramatic changes to their business models, and technology providers are adapting accordingly. Rather than focusing on complex financial engineering, dealers are now more concerned about clearing, liquidity, funding, collateral, documentation and regulatory compliance. This means banks need systems that can provide rapid valuations and real-time risk management – and, crucially, it means storing, sifting through and making sense of huge amounts of data.

But while the demand for computational power and data storage is rising inexorably, IT budgets are not. Gone are the days when bumper profits enabled every trading desk to indulge in a bespoke system. It’s not just cost constraints either – the need for aggregated risk analysis will no longer allow fragmented technology silos. Banks need more integrated and efficient IT infrastructures, and system vendors realise they have to provide increased capabilities at lower cost. Hence the continuing consolidation among vendors and the drive towards powerful but cost-effective technologies such as parallel processing and cloud computing.

 

Calypso Technology

Calypso Technology has been one of the providers of choice for the emergent central counterparty (CCP) sector, with its platform chosen by Eurex and Singapore Exchange. This has given the company insight into clearing processing and risk management, and enabled it to create a clearing management system for banks that includes connectivity to the major CCPs, trade valuation, client accounting and daily regulatory reporting. The company also offers an advanced module for the increasingly important and complex function of collateral management.

IBM/Algorithmics

The acquisition of Algorithmics by IBM last year gives the veteran risk management analytics specialist the strength of substantial corporate backing and access to a deep pool of technology resources. These include IBM’s OpenPages operational risk management software and Netezza high-performance data warehouse. Significantly, IBM has worked on natural language interpretation, unstructured data analysis and artificial intelligence capabilities. This could help with relatively mundane tasks such as automating the management of collateral documentation, but could also facilitate real-time interpretation of information on the internet and social networking sites, which could become increasingly important in anticipating market movements.

Moody’s Analytics

New York-based Moody’s Analytics has steadily built on its foundations in credit risk management to create a broad portfolio of risk analytical and management capabilities. It now provides software and advisory services for the measurement and management of market and liquidity risk, as well as asset and liability and limits management. It also is a leading provider of compliance packages for new regulation. More recent extensions include risk management training and consumer loan risk management, and economic-scenario-generator software as well as risk and capital modelling expertise through its acquisition of Barrie & Hibbert.

Misys

Murex

Numerix

New York-based Numerix had become a leading supplier of advanced pricing software before expanding into risk measurement and portfolio management. The company has pursued a successful ‘Numerix inside’ strategy of partnering with leading trading system suppliers to integrate its pricing library within its platforms. More recently, Numerix has worked to adapt its pricing and portfolio management software to operate in a cloud environment with Microsoft’s Azure and HPC Server technology, in order to meet the increasing computational demands of real-time pricing and risk management.

OpenGamma

If banks are happy to have open-source technology in their data centres, such as the Linux operating system and Apache servers, why not on their trading desks? London-based OpenGamma offers trading and risk analytics where the code is non-proprietary and free to download and implement. Development and debugging is collaborative and users can pick and mix components with their in-house or other third-party systems if they wish. The company provides a robust platform with all the basic components, including data management, analytics library, calculation engine and support services, leaving in-house developers to focus on those elements that must be tailored to the individual business or give a competitive edge.

SunGard

Pennsylvania-based SunGard has long been a leading provider of financial software with its Front Arena trading and risk system, Adaptiv enterprise risk management suite and APT portfolio and risk analytics. APT provides portfolio construction and optimisation, and risk reporting to hedge funds, brokers and others. Front Arena is a cross-asset platform with a scalable architecture and extensive operational functionality, including support for market-making and flow trading. Adaptiv includes market and credit risk capabilities, as well as integrated market and credit, collateral management, operations management and regulatory compliance calculations.