According to a recent poll of more than over 60 capital market executives by SimCorp, a provider of investment management services, 83% of buy-side respondents place a high importance on the ability to perform intraday calculations, but only 23% said they are able to perform these calculations.
Intraday calculations help firms better comprehend the impact of market events on their held securities during trading hours, rather than wait for an end of day report. The ability to perform intraday calculations impacts a variety of business decisions, including NAV calculations, the ability to post and optimise collateral, and perform more accurate risk analysis.
These inabilities leave investors exposed in the event of a market readjustment, commented Duncan Cooper, director of business consulting at Sapient Global Markets in the press release. For example, when Lehman collapsed six years ago, counterparties didn't immediately know the extent of their losses and were therefore unable to strategize to mitigate the damage.
According to Sapient and SimCorp, it's worrisome that years after the Lehman collapse over three quarters of the polled firms are in no better position to perform real-time risk management. This also leads to negative impacts on investor confidence, and explains why Sapient is seeing an uptick of asset managers asking for intraday trade reporting tools to both boost stakeholder confidence and gain a competitive advantage.
"Clients are calling it many things," says Mark Israel, investment management practice lead at Sapient Global Markets in an interview. "What they're asking for looks just like an Investment Book of Records (IBOR) but they're not calling it that." Instead asset management clients are asking for real time data warehouses, or real time risk data storage, or a real time position security master, "Sometimes they want it organized by fund, by strategy, by manager, and they need it by all different ways, and that's what really causes them to say we need something that looks like IBOR, but isn't."
He adds that IBORs were mentioned frequently six to eight years ago, but following the crisis was left off the priority list because of the industry's focus on cost reductions. Today, more frequent trading of different asset classes like deritvatives has put real-time positioning to the forefront of risk management.
"A large number of firms question if they are nimble and agile enough in operations to trade new instruments," he says. That means having things like real time positions and position keeping so they can do things like collateral management, optimization, and make risk-based investment decisions.
Furthermore, a large number of CIOs, COOs, or whoever is responsible for risk are asking how do they leverage real-time risk data to make the right decisions. "A lot of asset managers are looking at what types of risk they need to report, and how to report it on a more regular basis."
Israel believes the 23% that said they are able to perform intraday calculations are using advanced strategies that require real-time information, or they realize they need that to get maximum returns or streamline operations.
"My gut is there's another 25 percent or 50 percent trying to get there but they don't have the budget or coordination." The remaining 25% don't believe they need it now. Perhaps someone at the top believes that's now how they do business, that their strategy is more long-term stock picking and not about real time data. "Maybe they don't need it now, but that starts changing when it comes to what assets they start trading and holding."Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio