Real-Time Risk Management is a Must
Get Real

It seems that every day, the industry is becoming more obsessed with speed. And for good reason: The faster we can conduct various business processes—especially those pertaining to trading and risk management—the better, right?
The speed-in-trading issue has been adequately covered in the pages of Waters over the past few months, and this is set to continue, as latency of incoming feeds and outgoing execution instructions are incrementally eroded.
But real-time risk management is another issue altogether. We’ve covered it on a number of occasions over the years—Clive Davidson’s feature on page 23, which explores how banks address the issue of calculating risk exposures in as close to real time as possible, is our most recent iteration—even though my residual mood at the back end of each of these investigations could best be described as one of frustration. You see, I like happy endings and unambiguous resolutions. I like being able to draw a line under a subject, knowing that for the time being at least, we’ve got to the bottom of it so that I can move onto the next thing. But I’ve learned over the years that real-time risk management is not one of those issues you can neatly pigeon hole into a clearly defined and universally understood space in the financial services industry. Part of the problem is that the ‘real-time’ label, when attached to that of risk management, becomes something of a misnomer in the sense that extrapolating meaningful risk measures across business units, asset classes and counterparties in real time is simply not feasible. Not by a long shot.
What exacerbates this feeling of frustration is that there are large numbers of technology vendors serving both the buy and sell side who claim to be able to provide the underlying architecture that supports such initiatives. But when you come to challenge such claims, you find that what they’re talking about is real-time compliance or real-time market surveillance, which are significantly removed from real-time risk management. Of course, they would argue that automatic monitoring of a trader’s positions is, by association, a risk management function, given that the technology is designed to intervene as a way of mitigating the risk of traders breaching their limits. But this is a far cry from running tens of thousands of scenario analyses on a real-time basis, which, when it comes to high-frequency trading shops is simply too complex to even start to comprehend. So, for now at least, there appears to be no end in sight to my source of frustration.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Trading Tech
FCA sets up shop in US, asset managers collab, M&A heats up, and more
The Waters Cooler: Nasdaq and Bruce ATS partner for overnight market data, Osttra gets sold to KKR, and the SEC takes on DOGE in this week’s news roundup.
EMS vendors address FX options workflow bottlenecks
Volatility is driving more buy-side interest in automating exercises and allocations.
BNP Paribas explores GenAI for securities services business
The bank recently released a new web app for its client portal to modernize its tech stack.
Treasury selloff challenges back-office systems, datafeeds
FIS and Trading Technologies suffered downtime during peak activity.
Coming to America: Deutsche Börse targets US market using SimCorp One
Fresh from integrating SimCorp and rearranging its business lines, the German exchange has set American expansion as its goal for SimCorp’s buy-side offering.
Tariffs, data spikes, and having a ‘reasonable level of paranoia’
History doesn’t repeat itself, but it rhymes. Covid brought a “new normal” and a multitude of lessons that markets—and people—are still learning. New tariffs and global economic uncertainty mean it’s time to apply them, ready or not.
ICE eyes year-end launch for Treasury clearing service
Third entrant expects Q2 comment period for new access models that address ‘done-away’ accounting hurdle
MarketAxess, S&P partnership aims for greater transparency in fixed income
CP+, MarketAxess’s AI-powered pricing engine, will receive an influx of new datasets, while S&P Global Market Intelligence integrates the tool into its suite of bond-pricing solutions.