Quantifi's Survey: Industry to Overhaul Counterparty Risk Systems

Quantifi is reporting an industry-wide move to overhaul counterparty risk systems. All respondents to a counterparty credit survey plan to make changes in their counterparty risk systems, while 41 percent plan to complete major changes in 2012 or beyond, according to Quantifi, a provider of trading, analytics and risk management solutions.

Quantifi recently participated in the Global Derivatives and Risk Management conference in Paris where it surveyed a cross section of financial firms.

Quantifi announced the preliminary findings of its counterparty credit risk survey today. However, the company did not disclose how many participants it surveyed or the number of responses it received.

The company is a provider of a high-performance platform for managing counterparty credit and market risk.

Here are the major findings of the survey:

—Nearly one out of three firms are currently implementing or evaluating vendor counterparty risk and CVA systems (Counterparty Valuation Adjustment) [Ed. Note: A commercial bank’s CVA desk centralizes an institution’s control of counterparty risk by managing counterparty exposures incurred by other parts of the bank.]

— The largest challenge within existing counterparty risk systems is data management and integration (64%). The next largest challenge is the calculation of CVA sensitivities.

— About 27% of firms actively manage and hedge CVA – 59% of firms use exposure limits and 50% use counterparty selection as their primary method for counterparty credit risk management.

— Sixty-four percent of respondents calculate CVA on new trades and 50% of them use an integrated calculator with netting and collateral.

Rohan Douglas, CEO of Quantifi, comments, in the release: “Regulatory and market changes are driving banks to overhaul how they calculate and manage counterparty credit risk. The standard is being set by the largest global banks which now actively manage counterparty risk, calculate sensitivities, and price CVA for new trades using integrated solutions based on netting and collateral agreements. Given the portfolio level scope and the analytical complexity, existing technology infrastructures have constrained many banks from achieving best practices.”

In the same release, David Kelly, Head of Credit Products, Quantifi, notes, “There isn’t necessarily a ‘one size fits all’ approach to counterparty risk management due to the unique aspects of bank’s respective portfolios and supporting systems. Many firms are choosing vendor systems that already embed industry best practices and offer a faster and more cost-effective solution.”

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio