Pressure is growing to monitor risk and margin in real time

Sell-side risk management needs an overhaul that consolidates systems and incorporates the increased importance of margin into risk calculations.

This is the central conclusion of a recent Acuiti study, conducted in partnership with Sterling Trading Tech.

In a survey of 55 banks and brokers around the world, the study shows that fragmented legacy risk systems are hampering companies’ ability to respond to increased volatility in global markets.

The uncertainty of market movements this year, as well as the fallout from the explosion of Archegos, has highlighted the issue of counterparty risk and supervisory margin.

The results show that not only are volatile conditions forcing market makers to be more vigilant about collecting margin calls, but also that upgrades to existing infrastructure are needed across much of the industry.

Survey data shows that 86% of respondents use more than one system to manage risk across their derivatives business.

“Legacy infrastructure has built up in sell-side companies over the years through acquisitions and siled lines of business,” says Ross Lancaster, head of research at Acuiti. “This has led to costly and time-consuming operations that often fail to keep pace with client demands for cross-assertion trading strategies and lack the operational efficiencies of increased consolidation and timely monitoring. real.”

The main conclusions of the survey are as follows:

  • Regulatory and market pressure increases to monitor risk and margin in real time
  • 73% of respondents used between two and five risk management systems, showing the burden and complexity of the legacy infrastructure companies have built over the years
  • 64% of respondents take more than a week to implement risk and margin policy changes into their systems, increasingly out of step with rapidly changing market dynamics
  • Risk Committee changes to metrics lag real-time demands of current markets
  • 78% of respondents believe that a more dynamic risk and margin policy would give them a competitive advantage

The findings reinforce the reality that in markets where real-time risk management has become essential to managing counterparty exposure, systems often lag behind these requirements. Legacy infrastructure is often so embedded in businesses that even if they want to overhaul it, the operational challenges are too great. This will require imaginative solutions capable of integrating new risk models while avoiding costly and lengthy integration periods.

Source: Acuiti