Risk Management
Risk is an endemic factor in the functioning of the financial markets.
Our principle consultants have over 100 man-years valid experience in delivering Risk Management solutions. Whether considering implementation of Business Policy around the latest Basle II regulations or simply looking to implement a system to support your in-house Risk Management function; we have the know-how.
In keeping with the industry categorisation we demarcate our competency across 3 domains:
- CREDIT
- MARKET
- OPERATIONAL
Through hands-on experience as analysts and managers of Risk, coupled with expertise on the most prolific systems in the market-place we can provide support across the lifecycle of Risk Management process and system implementation.
Our solution partners and system experience includes SunGard, Algorithmics and Calypso.
Project Management
Introduction
The ITAR™ Project Methodology describes a structured approach for the implementation of an Enterprise Risk Management system.
The Methodology is built around a typical six stage implementation lifecycle.
Project Methodology Objectives
- Clearly defined Project organisation and structure
- Project Management using a consistent and proven approach
- Use of standard documents, tools and procedures
- Division of project into manageable stages
- Clearly defined deliverables and sign-off's for each stage
- Low risk approach.
Project Organisation and Structure
- Clearly defined Roles and responsibilities
- Steering Group to drive the project
- Client and 3di Project teams
- Working groups for functional requirements.
Project Control
- Steering Group
- Implementation Project Managers
- Project Reviews and Check-lists
- Project File.
Steering Group
- Steering Group Manage and make decisions on Project issues
- 3di - Project Director, Project Manager, Account Manager, Support Manager.
- Client -Project Director, Project Manager, Treasurer, Senior IT Manager, Operational Staff.
3di Client Project Team
- Project Director
- Project Manager
- Business Consultants/Analysts (Pricing, Credit Policy, etc.)
- Technical Consultants (Windows, UNIX, DBA, Networking, etc...)
- Software Engineers (Integration, Functional development)
- Data Analysts
- Account Management (Commercial and Technical Support).
Client Project team
- Project Director
- Project Manager
- System Administrator
- Database Administrator
- Super User
- Working groups.
Implementation Stages
Planning and Preparation
The objective for this stage is to define the scope of the project.
Deliverables for this stage are as follows:
- Project Plan including costs and resources
- Project Definition Document
- Planning and Preparation Check-lists.
Environment
The objectives for this stage are to provide a fully functional project environment to facilitate the succeeding implementation phases:
- Dedicated Development and staging domain
- QA environment
A fully functional Project Office with Change Control incorporated as part of the project process and reporting mechanisms.
Analysis & Configuration
The Object of this stage is carry out all requirements analysis in order to then configure the Risk Management test system to support the clients trading environment against the imposed risk management policy
This stage also covers the analysis and specification of any additional development work that may be needed
The deliverables for this phase include:
- A formal Requirements Analysis & Functional Specification
- Configuration Specification covering requirements for Products, Static Data,
Market Data, Trade/Position Data and risk reporting aspects of the system
- Factory and Acceptance Test Plans
- User configuration check-lists and sign-off.
Testing
The object of this stage is to carry out testing on the Risk Management system in order to evaluate whether the configuration/development process is complete and of the requisite functional quality.
The testing process includes:
- ACCEPTANCE TESTING
- Deal Capture
- Risk Events
- Position Keeping
- Risk & Regulatory Reporting
- BUSINESS USE-TEST CASES
- WORKFLOW TESTING
- Deal-Entry to EOD Reports
Training
The object of this stage is to carry out all the appropriate training required to operate and maintain the new system including:
- System Administration
- Data Administration
- Business System Administration
- Database Administration
- Super User (e.g. Head of Risk) – Exposure reporting & metrics
- Normal users (Traders, Risk analysts) - Position reporting & metrics.
Conversion <> Go-Live
The object of this stage is to verify the conversion process and simulate the Go-Live procedures
This stage will includes:
- Production Plan – migrating from QA or Parallel Run
- Review of Front and Back Office procedures and confirmation of workflow
Definitions
- Simulation of Go-Live plan
- Entry of one days deals by traders to re-enforce training and check figures.
Analysis and Consulting
ITAR™
Our Integrated Trading and Risk Management (ITAR) methodology represents an investment in people, processes and technology to enable and support an institution's vision for cross asset management of risk.
This is accomplished through enhanced Portfolio Management capability across all of the entity's functional areas (e.g., Front Office, Middle Office, and Back Office). The portfolio being managed is not a particular regional trading book or strategy per se, but the consolidated trading, generation and reporting activities across all assets, commodities, geographic locations and counterparty positions.
Opportunities for the Business
By providing a common platform for the viewing, valuation, risk analysis, and optimisation of business policy for the consolidated and individual portfolio, ITAR provides the following opportunities to the business:
- Allows for a "Multi-Asset Portfolio" perspective to be taken in a more robust way when making business decisions regarding: transactions, assets, risks and controls
- Supports product development and structuring in earning premium margins and increase customers
- Enables increased trading volumes with lower cost per transaction
- Enables management control and risk management/reduction of trading business
- Enhances the reputation of the business in the marketplace as trading counterparties, customers and rating agencies recognise the leading edge nature of its overall Risk Management practices.
Solution Components
ITAR help's the business create and capitalise on these opportunities by providing a leading edge mix of analytics and technology. The major components of the solution are:
- Real-time, integrated internal systems (e.g., trade capture, price forecasts) and external data feeds (e.g. prices, ratings, curves, etc.) to enable consolidation of the enterprise-wide portfolio
- Analytical tools to enhance new product development and structuring
- Valuation models to enhance deal evaluation
- Risk measurement systems (e.g. Adaptiv, Algorithmics, Calypso, etc.) to provide flexible, efficient and reliable risk and exposure analysis
- More readily available view of the consolidated portfolio position or any user defined sub-set of it
- Data integrity and consistency through guaranteed messaging technology.
Data Integration
Risk system implementations typically require an archetypal top-down approach to
defining both the business & build requirements:
As depicted in the above illustration, business requirements in terms of Market/Credit analysis and reports are defined for the purposes of functional design, with build and implementation activities structured around the product of a chosen risk measurement and monitoring framework.
The bottom-up constraints for configuration are all data centric (Static, Contracts and Market) and are fundamental to the analysis and reporting requirements of any risk management function.
Key to any successful implementation is the data Solicitation, Enrichment and Load (SEL) activities that comprise the Data Integration effort.
The key data-types that have to be reviewed are summarily discussed below:
Static Data
Much of an Enterprise's data is driven by the immediate needs of the front-office. Often, the expected reference data is missing from trade records, including - for example;
- Index information for individual equities
- Sector and sub-sector information for underlying equities
- Consistent Counterparty and account data.
Many risk reports cannot be produced without these data omissions being addressed.
Market Data
Many risk reporting systems derive their analytical data inputs from spreadsheets & other desktop based applications. These systems often draw data indirectly from Bloomberg, Reuters and other desktop pricing services.
Whilst this is acceptable on a per-terminal/per-spreadsheet basis,
outside of the desktop environment - and with respect to the configuration of an Enterprise Risk Management system - this is unacceptable for the following reasons:
Illegality
Market Data vendor licenses DO NOT contractually permit the distribution of data outside of the desktop environment. Distribution of market data even indirectly through risk reports requires a separate discrete license. Often technically these can only be realised through a directly permissionable feed or server capability.
Functionality
The requirements of risk projects demands real-time market data updates for the purposes of intra-day risk management. This is only achievable through streaming real-time or snapshot services.
Derived Data
A core requirement is to create historic market data archives which can then be used to create the required statistics set for RiskMetrics and other VAR-based analysis. Daily archives are used to build statistics from previously observed and used market rates. From here Volatility, Correlation and other derived values are computed.
Integration
To provide prescriptive solutions to the data requirements above, SEL sub-projects are often the most costly and technically demanding area of all Risk system implementations.
Tasks and activities can broadly described as:
- Investigate Reference Data source alternatives and integration aspects, with respect to aligning with in-house sources
- Design data and message augmentation utilising multiple static data sources updates
- Design workflow management for trade-cycle processing and trade record enrichment
- Investigate and implement Market Data sources for Price & Ratings updates
- Configure historical time-series databases and derived data computations.
