(Golden Copy) Covering Positions across Multiple Asset Classes
Westborough, MA and New York, NY, February 9, 2005 â As electronic automated trading continues to accelerate market velocity, the securities trading world becomes smaller, firms trade 24 x 7, multi-asset class funds become the norm and regulatory agencies respond with increased reporting requirements, explains a new industry report, "Managing Risk in Real-Time Markets, issued today by TABB Group.
With the major US equity exchanges projecting 100% growth rates year over year and fixed income products and foreign exchange expected to undergo a transformation towards bigger pools of electronic liquidity by 2010, TABB Group believes there is for a need for a better model for passing trading information downstream to the margin engine.
"Dissemination of executions across the enterprise will become critical, regardless of the risk models that are adopted," writes Adam Sussman, report author and a consultant at TABB Group, the financial markets strategic advisory firm.
According to Sussman, as electronic trading increases market velocity, prime broker transaction processing is forced to keep pace, limit trading or assume additional risk. Brokersâ margin engines need to be accelerated, but as greater numbers of hedge funds expand into multiple asset classes, risk monitoring grows in complexity.
To facilitate risk across each asset class, brokers need a real-time, centralized database, a "golden copy" of all positions. "Unfortunately, most primes donât have access to an accurate golden copy until late at night," says Sussman, adding, "but Federal regulators are demanding that the markets be notified expeditiously about important events. As Sussman points out, a major hurdle to satisfying risk management requirements is trade information often held within a siloed IT infrastructure.
The solution, according to Larry Tabb, CEO and founder at TABB Group, is based on the principle called "push not poll", which has been spreading across the financial markets as firms try to build distributed networks in a service-oriented architecture. Necessary, he explains, is implementation of an information architecture designed to push data across a network, allowing components to subscribe to the types of data required for its piece of functionality. "This will enable the most transaction-intensive firms to monitor and measure intraday market and counterparty risk in a timely, more efficient manner. It shouldnât be âpulledâ like teeth."
This report also details nine executive trends in managing risk in a real-time environment; the impact of increased trading automation; the rise of multi asset class hedge funds; regulatory issues, agencies and legislation; and the "push not poll" network environment.