Hello I'm Jeff Hong, Financial Services Industry Marketing at Platform Computing, recently we and our partner, SAS, sponsored a survey with Wall Street and Technology (WS&T) of leading capital markets firms on analytics (http://www.grid-analytics.wallstreetandtech.com/index.jhtml). While many of survey's results were par for course, a few findings raised the collective eyebrows here at the company.
Number One "Raise My Brow" Finding: "A significant 36 percent of buy-side firms and 30 percent of sell-side firms run counterparty risk analytics only on an ad hoc basis, or not at all". Uh huh... Number Two "Raise My Brow" Finding: "Two-thirds of respondents were not confident that their current analytic platform/infrastructure will continue to keep up over time". Uh Oh!
But won't Dodd Frank and its ilk - designed to minimize risk taken by banks and by implication - require more risk analytics? Well yes and no. There appear to be multiple opinions, some of which include:
• Regulations will dampen enthusiasm for OTC derivatives, favoring exchange traded assets. In this case, risk analytics become simpler.
• Investment banks will divest or shift their prop trading desks to other divisions e.g. asset management. In this case, it's no longer their concern.
• Regulations like Basel III will engender more risk, as banks need to get same return with less capital in play. More risk analytics are needed.
• Compliance will take years, so regulators and banks have time to make adjustments and plans. More or less risk analytics . unclear.
Add in the debate on flash trading, and the future of trading and therefore risk analytics becomes unclear. What is clear is that if your firm analyzes counterparty risk on an ad hoc basis or not at all, this is a real problem.
Accurately calculating your risk exposure - be it counterparty risk, liquidity risk, et. al. - and therefore your firm's health is always a good idea. Good risk practices will set your firm above the current and future debate on risk and regulations. Investing in your analytics infrastructure - be it new servers, better resource management with grid, and smarter data management - should be a priority. According to the same WS&T survey, financial institutions are looking to cluster, grid, and cloud software technologies. Within the next two years, 51 percent of survey respondents are considering or likely to invest in cluster technology, 53 percent are considering or likely to buy grid technology, and 57 percent are considering or likely to purchase cloud technology.
If your firm is planning to or is already doing more analysis, good for you! Otherwise take a couple of those blue or pink pills, and hope the headache goes away.
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