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Risk management. DeRivatives. Regulation

September 2010

Dynamic equilibrium
Technology special report and rankings

Dynamic equilibrium
Vendors maintained a vice-like grip on their leading positions for the provision of risk management and trading technology to institutions in the region during the past year. But beneath the surface the jockeying for position has been intense. Clive Davidson reports, with research by ana mendes

he major international vendors have maintained an iron grip on the derivatives trading and risk systems market during the past 12 months, according to the results of the Asia Risk technology rankings 2010. The results this year conform very closely with those of last year, with Thomson Reuters and Murex once again fighting an epic battle for first place. As with last year, Misys came a clear but distant third and Algorithmics once again performed strongly in risk management, taking fourth place overall. In almost every category, the same participants made the top five slots, although with some jockeying for final position compared with 2009. Even the two categories that were new to this years rankings implementation efficiency and after-sales service were dominated by the major vendors, with Thomson Reuters, Murex and Misys in cut-throat competition for the top three spots. However, the fact that the headline rankings results diverge little from last year does not mean the past 12 months have been uneventful in terms of trading and risk technology. On the contrary, there has been enormous activity as the vendors have mobilised to meet the rapidly evolving requirements of financial institutions of all types. A closer look at the vendors recent contracts and their ongoing projects demonstrates the diversity of trading business and risk management efforts in the region. The way in which the vendors have been able to meet what have often been challenging demands may also demonstrate why they continue to dominate the rankings and win the endorsement of their users. Once again, New York-based Thomson Reuters was the number one ranking technology vendor, topping nine categories, including credit, interest rates and cross-asset derivatives pricing and analytics; foreign exchange, interest rates and cross-asset trading systems; and credit risk management; as well as the back office and implementa-

tion efficiency categories. The companys broad suite of products, from its well-established Kondor+ cross-asset trading platform, to its recently launched back-office system to its revamped Kondor Global Risk credit and market risk and limits system, has enabled it to compete successfully at the highest levels across the derivatives trading and risk spectrum. An example of this took place for a Malaysian bank that had its Kondor+ platform linked to its third-party back-office system. Thomson Reuters was able to demonstrate the benefits of installing its own back-office system instead to achieve a single rationalised straight-through processing system with lower cost and reduced operational risk, says Singapore-based Craig Bennett, head of risk, Asia, for Thomson Reuters. Thomson Reuters has also been working with other Asian banks wanting to rationalise their trading and risk systems to support their growing operations, both in the region and globally. Asian banks were not as affected by the financial crisis as those in Europe and the US and see significant potential for expansion within and beyond the region. They are looking at building the infrastructure that will allow them to do that while maintaining their existing levels of transparency and control, says Bennett. Leading banks in Japan, Korea and Australia have also been showing interest in Thomson Reuters new TopOffice integrated risk, profit and loss and liquidity management system, and in particular its ability to help them meet new stress test regulations. Paris-based Murex was just one point behind Thomson Reuters in the rankings, with seven first places, 10 second and two third places. It came overall top in the trading systems categories, as well as winning the commodities and forex derivatives pricing and analytics, market risk and after-sales service categories. The company views the region as a collection of very different markets, some mature, others

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in the process of growing and maturing and a few still emerging, and tailors its marketing and investment to each area accordingly. Regional participants in mature markets have been acquiring assets from faltering European or US banks, leading to integration and accelerated growth challenges, says Guy Otayek, chief executive officer of Murex Asia, who is based in Singapore. Meanwhile,

A closer look at the vendors recent contracts and their ongoing projects demonstrates the diversity of trading business and risk management efforts in the region
leading local players of growing markets have been investing across the board to build a trading and processing infrastructure capable of multiplying and internationalising their footprint. Finally, in the emerging markets, future leaders have been quietly investing in platforms capable of managing their nascent markets today and boosting their future growth tomorrow. All client types have been enhancing their enterprise risk management capabilities. Examples of these trends among Murex clients include a major Australian bank investing heavily to benefit from the retreat of US and European banks from local markets, and a leading Korean bank

building a significant trading and processing platform to support a wide range of products and provide the infrastructure to support ambitious growth. Both these cases led to challenges in terms of accelerated delivery [of software], evolving business models and knowledge transfer, says Otayek. To provide accelerated delivery of its systems, which many institutions now demand, Murex has introduced a new version of its MXpress rapid implementation methodology and technology. London-based Misys retained its overall third position despite tough competition across all categories. The vendor performed particularly strongly in risk management, winning the operational risk, enterprise-wide risk management and asset and liability management categories. Its strength in risk management was a key factor in an Asian central bank, the Bank of Papua New Guinea, choosing Misys systems to help grow its treasury instruments business, says Singapore-based Alexandru Gomoiu, head of solution consulting for treasury and capital markets in Asia-Pacific at Misys. The banks back office will use the systems event-based workflow manager to confirm deal and payment information with counterparties and send automatically-generated confirmations. Our system also provides the bank with a risk management framework, including performance and return attribution analysis, portfolio and currency compliance limits and policy controls, says Gomoiu. Providing technology to strengthen risk control was also a major factor in a project Misys undertook with a leading Taiwanese bank seeking to improve its business capability and operational efficiency. The project included the ability to provide the banks clients with more diversified financial investment and risk evasion products that help deepen the relationship between the bank and its clients, says Gomoiu. The system is initially being used by the banks Taipei and

The challenge has been to identify the type of risk information senior management actually needs ... and increase the speed at which that information can be provided to them
Mina Wallace, Algorithmics
Hong Kong trading desks, with the potential for extending it to other branches. Toronto-based Algorithmics topped the economic and regulatory capital calculation and management categories and was placed in all the other risk management categories, resulting in the company taking fourth place overall. The financial crisis and its aftermath have played to the strengths of a risk specialist such as Algorithmics, says Peter Traynor, Senior Director, APAC, at Algorithmics, who is based in Singapore. There has been a much greater emphasis in Asia in 2010 on improving risk governance and on rationalising historically siloed risk architectures. Mina Wallace, Executive Vice President, Asia operations, Algorithmics, adds: The challenge has been

to identify the type of risk information senior management actually needs, to sharpen the type and consistency of risk information provided to senior decision-makers, and increase the speed at which that information can be provided to them. Algorithmics has had a number of requests from banks in the region to help them clarify their risk appetite frameworks and make them more practical. In addition, we have had requests for formal linkages between previously independent risk measurement processes, as well as for integrated risk dashboards that support rapid scenario and risk contribution analysis across risk categories. Such dashboards require an underlying analytic infrastructure that captures the interactions between market, credit and liquidity risks, says Traynor. For example, Algorithmics is working with large institutions in Taiwan and Singapore to link counterparty credit risk measurement infrastructures with collateral management, risk limits and pricing. And in South-east Asia, we are working with client institutions on linking credit risk with its liquidity risk consequences, he adds. Bloomberg held its fifth position overall, winning the application services provider and data vendor categories and being placed in all the derivatives pricing and analytics categories. Our clients in Asia have been challenged with the need to upgrade their technology platforms while working within the bounds of cost in an unpredictable financial environment, says Gerard Francis, Bloombergs global head of emerging markets, who is also based in Singapore. A focus of Bloombergs work with clients during the past year has been to identify areas of cost duplication. To this end, the company has provided both buy-side and sell-side customers with multi-asset class order management systems that leverage their existing investment in Bloomberg. For example, sell-side clients used Bloomberg as a cost-effective method of delivering multi-asset electronic trading solutions to their buy-side clients via their existing Bloomberg platforms. In some cases, clients even used the video and audio communication tools available on Bloomberg, says Francis. California-based Moodys Analytics topped the liquidity risk management category, came second in the economic capital calculation and management and asset and liability management categories, and third in the regulatory capital calculation and management category. Regulatory compliance has been a particularly strong suit for the vendor, especially in China where it is involved with four of the top banks Basel II projects. In two of the cases Moodys Analytics is providing its Basel II application package, and in the other two, where the banks are building their own applications, the vendor is providing a model validation service. Risk management is not just a software sale in the region, says Singapore-based Geoff Fite, chief operating officer for Moodys Analytics. A vendor not only has to have experience in implementing credit risk, market risk and Basel II solutions, it also has to know how to construct probability of default, loss given default, exposure at default and other models. Moodys Analytics has also been busy helping Asian banks that have operations in the UK and UK banks that have significant operations in Asia meet the UK Financial Services Authoritys recently introduced liquidity risk management rules, says Fite. Paris-based Sophis, meanwhile, retained its position of seventh overall, winning the equities derivatives pricing and analytics risk category once again, and coming runner-up in the equities deriva-

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tives trading category. The vendor believes there are significant opportunities for its products in China and Korea, in particular, and has been increasing its resources in these countries leading to several new client wins, says Vincent Lo, Sophiss Hong-Kong-based sales director for Asia. For example, China Re Asset Management Company, the asset management arm of China Reinsurance, is implementing Sophiss Value buy-side system. Value is a relatively light solution in terms of system architecture and ongoing maintenance, which in turn means a lower cost of ownership, says Lo. Other key factors in winning the contract included the rapid implementation time for the system, its flexibility for product structuring and its automated straightthrough processing capabilities. South Koreas Hyundai Securities is also implementing Value, this time for its fixed income, interest rates, currencies and commodities businesses. The bank said it was looking for a modern analytical framework that would give it a competitive advantage in its markets, as well as for a system that offered flexibility and the possibility of customisation. Pennsylvania-based SunGard, which was placed joint eighth overall, made the top five in all the risk management categories except for liquidity risk management, and took second place in enterprise-wide risk management. Andrew Bateman, chief operating officer for SunGard Asia-Pacific, who is based in Singapore, says one of the major trends in the region during the past year has been an increased scrutiny by investors and demand for more transparency in reporting, especially in the risk and return profile. As a result, there has been an increased demand for systems that can provide a comprehensive analysis of risk and full reporting. Among the institutions that SunGard helped during the past 12 months was a large securities house in Korea that required an infrastructure to better manage its trading portfolio, as well as to provide a flexible pricing and origination tool to enable it to win customers in the highly competitive local equity derivatives market. Also in Korea, a top-three bank chose SunGards Adaptiv Risk system on which to base its market risk infrastructure, where the flexibility and ease of use of the graphical user interface helped prove to the banks management that it would be able to receive the reports it needed immediately and in the future. California-based Calypso Technology was placed in the top five in back-office systems, credit derivatives pricing and analytics, and commodities, credit and interest rates trading systems categories. The vendor has been helping clients that want to rationalise complex system structures to achieve greater efficiencies, lower their cost structure and improve operational risk. As firms prepare for the gradual return of complex derivatives and higher volumes, many institutions are now looking to integrate their middle and back-office functions across all asset classes to remain competitive, says Sean McDermott, Calypsos Singapore-based general manager for the Asia-Pacific region. ASB Bank in New Zealand is currently replacing its ageing systems with a Calypso platform for front- to back-office treasury

operations, including trading, processing, limits, value-at-risk and enterprise risk, and a leading Japanese trust bank has rolled out a Calypso cross-asset front- to back-office platform to replace numerous individual systems in three major financial centres. In Japan, Calypso is implementing a hosted software-as-a-service frontto-back platform for an insurance company to enable it to handle growing volumes and new products. Although the Asia Risk technology rankings 2010 show established market participants taking an even firmer grip on the market, the coming year will present a number of opportunities for sharp competition as financial institutions struggle to meet the challenges of a volatile and uncertain economic climate. Thomson Reuters Bennett says the biggest challenge facing institutions in the region is the uncertainty surrounding new regulation. There is still a lot of debate taking place about what Basel III will entail and how regulators in the region will implement it, he says. Otayek of Murex adds: Clients in Asia Pacific will continue to face challenges in growing their trading infrastructure in terms of change management, building up skilled resources and keeping close control of operations that are growing in complexity. And they will need to do so in an

There has been a much greater emphasis in Asia in 2010 on improving risk governance and on rationalising historically siloed risk architectures
Peter Traynor, Algorithmics
environment which remains uncertain and difficult at times, with somewhat constrained budgets. Winning institutions will be those capable of implementing major changes in infrastructure at costs that are fractions of what used to be the norm three years ago. Algorithmics Traynor believes there is likely to be a greater focus on the qualitative side of risk management by institutions. This will require open and transparent risk measurement models and systems supporting qualitative-based analysis, in particular, senior management-driven scenario analysis, he says. Meanwhile, Fite of Moodys Analytics expects that many Asian banks are going to leapfrog their counterparts in Europe and the US in terms of their risk practices as they adopt state-of-the-art risk practices, such as risk-adjusted pricing, return on capital-based pricing, and the use of key performance indicators to improve profitability. In three to five years we will find that the big banks in Asia are incredibly sophisticated in their risk management practices and will be able to move into Europe and US and compete favourably with their established players, he says. l

top 10 overall vendors

2010 1 2 3 4= 4= 6 7 8= 8= 2009 1 2 3 4 5 6 =7 =7 =9 Vendor thomson Reuters murex misys algorithmics Bloomberg moodys analytics sophis sungard sas 1st 9 7 3 2 2 1 1 0 0 2nd 6 10 2 1 1 2 1 1 1 3rd 5 2 9 3 3 1 0 0 0 Points 44 43 22 11 11 8 5 2 2

Risk management
Credit risk management
2010 1 2 3 4 5 2009 1 2 3 4 Dealer thomson Reuters murex algorithmics misys sungard % 18.3 15.1 11.0 10.8 10.3

Market risk management

2010 1 2 3 4 5 2009 1 3 2 5 4 Dealer murex algorithmics thomson Reuters misys sungard % 18.6 15.4 15.2 11.3 9.7

Risk management overall

2010 2009 1 2 3 4 5 2 3 4 1 5 Vendor misys algorithmics murex thomson Reuters moodys analytics 1st 3 2 1 2 1 2nd 1 1 3 0 2 3rd 2 4 1 2 1 Points 13 12 10 8 8

Operational risk management

2010 1 2 3 4 5 2009 1 3 2 4 Dealer misys sas algorithmics sungard moodys analytics % 17.3 14.3 12.1 11.2 10.6

Pricing and risk analytics overall

2010 1 2 3 4 5 2009 2 1 4 3 Vendor thomson Reuters murex sophis Bloomberg misys 1st 3 2 1 0 0 2nd 3 3 0 0 0 3rd 0 1 0 3 2 Points 15 13 3 3 2

Liquidity risk management

2010 1 2 3 4 5 2009 n/a Dealer moodys analytics murex thomson Reuters algorithmics misys % 17.1 16.4 13.1 11.3 10.8

Back office
2010 1 2 3 4 2009 1 2 3 4 5 Dealer thomson Reuters murex misys Calypso sungard % 18.7 15.3 11.9 10.5 9.2

trading systems overall

2010 1 2 3 4= 4= 2009 1 2 3 5 Vendor murex thomson Reuters misys Bloomberg sophis 1st 3 3 0 0 0 2nd 3 1 0 1 1 3rd 0 2 4 0 0 Points 15 13 4 2 2

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Enterprise-wise risk management/Cross-risk integration

2010 1 2 3 4 5 2009 1 2 3 4 Dealer misys sungard murex algorithmics moodys % 17.1 16.3 13.9 13.7 10.3

Regulatory capital calculation and management

2010 1 2 3 4 5 2009 1 3 2 5 4 Dealer algorithmics misys moodys sungard sas % 17.1 16.5 14.8 13.8 12.1

Economic capital calculation and management

2010 1 2 3 4 5 2009 2 1 4 3 5 Dealer algorithmics moodys misys sungard sas % 16.0 15.8 14.8 12.6 10.6

Asset and liability management

2010 1 2 3 4 5 2009 1 4 2 3 Dealer misys moodys algorithmics sungard thomson Reuters % 16.8 15.8 12.5 11.3 9.0

Derivatives pricing and risk analytics

Commodities
2010 1 2 3 4 5 2009 1 2 3 4 5 Dealer murex thomson Reuters Bloomberg misys numeriX % 19.2 17.8 14.4 13.9 10.2

Foreign exchange
2010 1 2 3 4 5 2009 1 2 4 3 5 Dealer murex thomson Reuters misys Bloomberg numeriX % 16.1 15.9 12.5 12.4 11.3

Credit
2010 1 2 3 4 5 4 3 2009 1 2 Dealer thomson Reuters murex Bloomberg misys Calypso % 18.6 15.9 12.7 11.6 10.9

Interest rates
2010 1 2 3 4 5 2009 1 2 4 3 5 Dealer thomson Reuters murex misys Bloomberg numeriX % 18.1 15.0 12.6 12.1 10.9

Equities
2010 1 2 3 4 5 2009 1 3 2 4 5 Dealer sophis thomson Reuters murex Bloomberg numerix % 17.9 16.1 14.6 13.8 10.1

Hybrids/Cross-asset class
2010 1 2 3= 3= 5 2009 1 2 3 4 5 Dealer thomson Reuters murex Bloomberg misys numeriX % 18.5 15.4 13.1 13.1 12.8

trading systems
Commodities (front-to-back office)
2010 1 2 3 4 5 2009 1 2 3 4 Dealer murex Bloomberg thomson Reuters misys Calypso % 18.9 16.2 16.1 13.4 10.5

support services
Application service provider
2010 1 2 3 4 5 2009 2 4 1 5 Dealer Bloomberg thomson Reuters imagine misys sungard % 19.2 17.2 13.7 12.9 9.9

Credit (front-to-back office)

2010 1 2 3 4 5 2009 3 2 4 1 Dealer murex thomson Reuters misys Bloomberg Calypso % 17.6 17.1 13.2 12.8 12.3

Data vendor
2010 1 2 3 4 5 2009 1 2 3 4 Dealer Bloomberg thomson Reuters markit interactive Data telekurs % 18.9 17.4 14.6 11.9 11.6

Equities (front-to-back office)

2010 1 2 3 4 5 2009 2 3 1 4 Dealer murex sophis thomson Reuters misys imagine % 17.6 15.7 15.2 13.7 11.6

Implementation efficiency*
2010 1 2 3 4 5 2009 Dealer thomson Reuters murex misys Bloomberg imagine % 16.5 14.2 11.6 10.4 10.3

Foreign exchange (front-to-back office)

2010 1 2 3 4 5 2009 1 2 3 4 Dealer thomson Reuters murex misys sungard Bloomberg % 19.1 17.4 14.6 11.8 11.5

After-sales service*
2010 1 2 3 4 5 2009 Dealer murex misys thomson Reuters algorithmics sungard % 16.3 15.1 12.6 11.4 10.6

* Not in 2009 rankings

Interest rates (front-to-back office)

2010 1 2 3 4 5 2009 2 1 3 4 Dealer thomson Reuters murex misys Bloomberg Calypso % 18.3 17.9 15.0 12.3 10.6

Hybrids/Cross-asset class (front-to-back office)

2010 1 2 3= 3= 5 2009 2 1 3 5 Dealer thomson Reuters murex misys Bloomberg sungard % 18.5 16.2 14.2 14.2 10.2

How the survey was conducted

Asia Risk surveyed technology users in Asia in July and received 686 valid responses. Respondents were asked to nominate the companies that provide the best products across categories such as market risk, credit risk, trading systems, analytics and front-to-back-office systems, based on functionality, usability, performance, return on investment and reliability. Three points were awarded for a first-place nomination, two points for second and one point for third. Asia Risk verified the validity of votes and discounted invalid votes.

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 2008 Algorithmics Software LLC. All rights reserved. ALGO, ALGORITHMICS, Ai & design, ALGORITHMICS & Ai & design, KNOW YOUR RISK, MARK-TO-FUTURE, RISKWATCH, ALGO RISK SERVICE, ALGO CAPITAL, ALGO COLLATERAL, ALGO CREDIT, ALGO MARKET, ALGO OPVANTAGE, ALGO OPVANTAGE FIRST, ALGO RISK, and ALGO SUITE are trademarks of Algorithmics Trademarks LLC.

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