For Immediate Release:
Martin Rabkin, martinrabkinink
914-420-5739 / email@example.com
Advanced Calculations and Computational Power Improving Firm’s Ability to Measure Risk, Says TABB
New Research Details How Firms are Streamlining their Risk Management Process
NEW YORK & LONDON, June 29, 2012 – With markets growing more volatile and moving faster in 2012 amidst the changing regulatory environment in the US and across Europe, risk processes have needed to pick up the pace and keep up, leading global investment banks and institutional investors reasons to deal with risk modeling in more advanced, innovative ways.
According to TABB Group in new research announced today, “Risk Measurement On Demand: Complexity, Volatility and Regulatory Uncertainty,”more sophisticated, flexible risk-measurement tools are already being deployed, evaluating risk profiles of exotic structured products ondemand, integrating analytics into a customizable, intuitive interface.
Written by Adam Sussman, partner, director of research, and research analyst Cheyenne Morgan, the report focuses on how the most sophisticated toolkits available today can help cultivate a more efficient portfolio- and enterprise-risk management process. This holds special credence because with looming global OTC derivatives reform primed to have a huge impact on how firms implement or upgrade their risk management systems, with new regulations expected to affect everything from cut-and-dry reporting requirements to more complex issues such as high-speed trading and clearing products that were previously deemed un-clearable.
Now that risk models have been improved and the faster hardware deployed, new techniques are being sought to speed up risk calculations, Sussman says. “The combination of advanced calculation and techniques are leveling the playing field for trading more complex products.” TABB estimates that the financial services industry spent $9.5 billion on risk management in 2011, growing over 12% annually in the US and 14% annually in Europe.
As Morgan explains, it’s not how quickly an infrastructure receives data that determines its ability to react. “If a fund has modern technology for its vanilla trading activity, but lacks the data and modeling techniques to properly value exposure to exotics, from a risk-analysis and exposure-management standpoint, its enterprise risk assessment will be grossly misstated.”
It is important, she adds, to recognize that regulatory reform is only part of the equation in improving risk management and that firms should focus on risk measurement across centrally cleared products. Beyond this comparatively vanilla territory lay the more complex and exotic structured products. Evaluating these products’ risk profiles requires more sophisticated, flexible, risk-measurement tools. “A comprehensive risk measurement toolkit solution will be essential to efficiently calculate CVA and VaR, conduct stress testing, or assess how a new trade or position will affect an entire portfolio’s risk,” says Morgan. With 80% of trading in the interdealer market for CDS index products already moved to the screen, she adds, as more firm move to electronic swaps trading, acceptable latency for market risk calculations will continue to drop.”
Previously a sell-side specialty, toolkits allow quicker implementations, reducing custom, firm-specific development time, typical of large enterprise installations. Although risk management is one of the few areas wherefirms are increasing their technology spend, Morgan cautions that this does not mean they necessarily have the appetite for a full rewrite.
“Once tucked away within Wall Street’s elite sell-side offices,” says Morgan, “the most sophisticated off-the-shelf toolkits available today are now being offered by risk technologyvendors, helping to cultivate a more efficient portfolio and enterprise risk management process.”
The study is available for download by TABB Group Research Alliance Fixed Incomeclients and pre-qualified media at https://www.tabbgroup.com/Login.aspx. For an executive summaryor to purchase the report, visit http://www.tabbgroup.com or write to firstname.lastname@example.org.
About TABB Group
With offices in New York, London and expanding across the Asia-Pacific region, TABB Group is the financial industry’s only strategic advisory and research firm focused solely on capital markets, based on the proven interview-based research methodology of “first-person knowledge” developed by founder Larry Tabb. For more information, visit www.tabbgroup.com. In January 2010, TABB launched TabbFORUM, the online global capital markets community covering opinions and analyses on current industry issues, tracked daily by over 12,000 industry professionals.