As principles-based enforcement takes hold, senior management in capital market firms will have to develop the capability to demonstrate accountability over the outcomes and build auditable workflows, advises a new book authored by Sybase experts (www.sybase.com). This will mean improving cooperation across business, technology, operations, risk management and CFO functions, write Raj Nathan, Irfan Khan and Sinan Baskan in ‘The New Data Imperative: Managing real-time risk in capital markets’ (www.eastonsp.com).
They cite the observation of the Senior Supervisors Group of the Bank for International Settlements which, in its investigation into the sub-prime meltdown, indicated that coordinating risks and aligning required data and technology across the enterprise will be major challenges for some financial firms. The authors foresee, therefore, that a heightened level of regulatory scrutiny and cooperation across international boundaries will create even greater urgency for better information management and decision support.
For instance, “if proposed new regulatory processes are implemented, firms may have to show an auditable trail of transactions every 10 minutes requiring an online repository of trades and risk measures. This will demand a large amount of storage, computing power and skilled manpower.”
The book captures the top IT concerns and strategies of some of the seasoned players in the industry. Such as of Ajit Naidu, the CTO for Merrill’s Global Investment Banking and Institutional Technology division, who sees a need to have not only an extremely fast, reliable, scalable and redundant market access layer but also solutions for handling large volumes of market data.
“We are evaluating InfiniBand (a switched fabric interconnect standard for servers) along with grid computing to address the need for fast access to storage and the demand for computation cycles. We are evaluating not only large-scale database technologies but also how to query, filter, and run algorithms on streaming data,” says Naidu.
And there is this view of Frank Piasecki, president and co-founder at ACTIV Financial – that calculating risk statistics has become an extremely difficult task for financial institutions, “particularly for automated trading desks which need to scan the market for more than 1.5 million option records for volatility opportunities.”
A critical piece in the design criteria for the next generation IT infrastructure, the authors observe, will be the capacity to harvest related information from both internal and external systems and to streamline, aggregate and present the information to decision makers in a contextual framework.
“Information floods into automated, high-frequency trading systems throughout the 24-hour news cycle. Utilising software programs that read, interpret, and react to news items, a trade that is prompted in response to a US Treasury announcement, for example, could be completed in milliseconds.”
Not a dream, but a reality, as in the case of the Reuters NewsScope Archive, a computer-readable archive of its global news service, which has created ‘new and interesting patterns in the incredibly complex field of event-triggered trading.’ The service tags digital IDs to news events as they break in the markets, so that they can be downloaded for software to analyse them for relevance and deliver them for action, the authors describe. “Traders linked into the comprehensive global news archive are thus equipped with information that is timed and stamped to the millisecond to help them identify events that affect their securities and better manage event risk.”
We are all heading to microseconds, alerts a quote of Andrew Brenner, head of the ISE Stock Exchange, a subsidiary of the International Securities Exchange. “To be even a player in this game, you have to be in the single-digit milliseconds and you have to go down from there.”
Too risky to ignore.
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