An overhaul is needed to help firms respond to increased volatility across global markets
Legacy risk management systems are fragmented and hampering investment managers’ capabilities to respond to increasing volatility across global markets.
That’s one of the key takeaways from an international survey of banks and dealer-brokers by management intelligence platform Acuiti.
It found that sell-side risk management needs an overhaul including placing more importance on margin in risk calculations.
The findings 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.
Too slow to react
Most survey respondents (86%) said that they use one or more system to manage risk across their derivatives business, while 73% use between two and five risk systems.
This adds to limited agility of firms with two thirds saying that it takes more than a week to make risk margin and policy changes in their system, and risk committee changes to parameters lag the real time demands of current day markets, putting firms out of sync with the fast-moving markets.
“Legacy infrastructure has accumulated at sell-side firms over the years through acquisitions and siloed business lines,” says Ross Lancaster, head of research at Acuiti. “This has led to costly and burdensome operations that often fail to keep pace with client demands for cross-assert trading strategies and miss the operational efficiencies of more consolidation and real time oversight.”
More than three quarters of respondents think that a more dynamic risk and margin policy would provide a competitive edge.
However, the survey highlighted that legacy systems can become so embedded in firms that replacement is too much of a challenge.
