risk tech rankings

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Risk management. DeRivatives. Regulation September 2010

RePRinteD FRom

Dynamic equilibrium

Technology special report and rankings

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The major international vendors have maintained an iron grip on the derivatives trading and risk systems market dur-ing 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 year’s 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 un-eventful 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 company’s 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 Ma-laysian 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 Ben-nett, 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 be-yond 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 win-ning 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

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

Dynamic equilibrium

september 2010Reprinted from september 2010 Technology

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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 execu-tive officer of Murex Asia, who is based in Singapore. “Meanwhile,

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 plat-forms 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 manage-ment 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 bank’s back office will use the system’s 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 bank’s 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 bank’s Taipei and

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

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 tak-ing 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 histori-cally ‘siloed’ risk architectures.” Mina Wallace, Executive Vice Presi-dent, 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 pro-vided 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 unpredict-able financial environment,” says Gerard Francis, Bloomberg’s global head of emerging markets, who is also based in Singapore.

A focus of Bloomberg’s 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 invest-ment 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 plat-forms. “In some cases, clients even used the video and audio com-munication tools available on Bloomberg,” says Francis.

California-based Moody’s Analytics topped the liquidity risk man-agement 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 Moody’s Analytics is pro-viding its Basel II application package, and in the other two, where the banks are building their own applications, the vendor is provid-ing a model validation service.

“Risk management is not just a software sale in the region,” says Singapore-based Geoff Fite, chief operating officer for Moody’s Analytics. “A vendor not only has to have experience in imple-menting 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.” Moody’s 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 Authority’s 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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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


tives trading category. The vendor believes there are significant op-portunities for its products in China and Korea, in particular, and has been increasing its resources in these countries leading to sev-eral new client wins, says Vincent Lo, Sophis’s Hong-Kong-based sales director for Asia.

For example, China Re Asset Management Company, the asset management arm of China Reinsurance, is implementing Sophis’s 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 imple-mentation time for the system, its flexibility for product structuring and its automated straight-through processing capabilities.

South Korea’s Hyundai Securities is also implementing Value, this time for its fixed in-come, 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 pos-sibility of customisation.

Pennsylvania-based SunGard, which was placed joint eighth overall, made the top five in all the risk management categories except for li-quidity risk management, and took second place in enterprise-wide risk management. Andrew Bateman, chief operat-ing 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 transpar-ency in reporting, especially in the risk and return profile”. As a re-sult, 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 infra-structure 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 SunGard’s Adaptiv Risk system on which to base its market risk infrastructure, where the flex-ibility and ease of use of the graphical user interface helped prove to the bank’s 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 com-plex 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 in-stitutions are now looking to integrate their middle and back-office functions across all asset classes to remain competitive,” says Sean McDermott, Calypso’s Singapore-based general manager for the Asia-Pacific region.

ASB Bank in New Zealand is currently replacing its ageing sys-tems 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 numer-ous individual systems in three major financial centres. In Japan, Calypso is implementing a hosted ‘software-as-a-service’ front-to-back platform for an insurance company to enable it to handle growing volumes and new products.

Although the Asia Risk technology rankings 2010 show estab-lished 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 big-gest 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 man-agement, building up skilled resources and keep-ing close control of operations that are growing in complexity. And they will need to do so in an

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 manage-ment-driven scenario analysis,” he says.

Meanwhile, Fite of Moody’s 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 prac-tices, 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 in-credibly 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

4

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


5

top 10 overall vendors

2010 2009 Vendor 1st 2nd 3rd Points

1 2 misys 3 1 2 13

2 3 algorithmics 2 1 4 12

3 4 murex 1 3 1 10

4 1 thomson Reuters 2 0 2 8

5 5 moody’s analytics 1 2 1 8



2 1 murex 2 3 1 13

3 4 sophis 1 0 0 3

4 3 Bloomberg 0 0 3 3

5 – misys 0 0 2 2


1 1 murex 3 3 0 15


3 3 misys 0 0 4 4

4= – Bloomberg 0 1 0 2

4= 5 sophis 0 1 0 2



2 2 murex 7 10 2 43

3 3 misys 3 2 9 22

4= 4 algorithmics 2 1 3 11

4= 5 Bloomberg 2 1 3 11

6 6 moody’s analytics 1 2 1 8

7 =7 sophis 1 1 0 5

8= =7 sungard 0 1 0 2

8= =9 sas 0 1 0 2

Credit risk management 2010 2009 Dealer %

1 1 thomson Reuters 18.3

2 2 murex 15.1

3 3 algorithmics 11.0

4 – misys 10.8

5 4 sungard 10.3

Market risk management2010 2009 Dealer %

1 1 murex 18.6



4 5 misys 11.3

5 4 sungard 9.7

Operational risk management2010 2009 Dealer %

1 1 misys 17.3

2 3 sas 14.3


4 – sungard 11.2

5 4 moody’s analytics 10.6

Liquidity risk management2010 2009 Dealer %

1 n/a moody’s analytics 17.1

2 murex 16.4

3 thomson Reuters 13.1

4 algorithmics 11.3

5 misys 10.8

Back office

2010 2009 Dealer %


2 2 murex 15.3

3 3 misys 11.9

4 4 Calypso 10.5

5 5 sungard 9.2

Risk management – overall

Risk management

Pricing and risk analytics – overall

trading systems – overall


6

Enterprise-wise risk management/Cross-risk integration2010 2009 Dealer %

1 1 misys 17.1

2 2 sungard 16.3

3 – murex 13.9


5 4 moody’s 10.3

Economic capital calculation and management2010 2009 Dealer %


2 1 moody’s 15.8

3 4 misys 14.8

4 3 sungard 12.6

5 5 sas 10.6

Regulatory capital calculation and management2010 2009 Dealer %


2 3 misys 16.5

3 2 moody’s 14.8

4 5 sungard 13.8

5 4 sas 12.1

Asset and liability management2010 2009 Dealer %

1 1 misys 16.8

2 4 moody’s 15.8


4 3 sungard 11.3

5 – thomson Reuters 9.0

Commodities2010 2009 Dealer %

1 1 murex 19.2


3 3 Bloomberg 14.4

4 4 misys 13.9

5 5 numeriX 10.2

Credit2010 2009 Dealer %


2 2 murex 15.9

3 Bloomberg 12.7

4 4 misys 11.6

5 3 Calypso 10.9

Equities2010 2009 Dealer %

1 1 sophis 17.9


3 2 murex 14.6

4 4 Bloomberg 13.8

5 5 numerix 10.1

Foreign exchange2010 2009 Dealer %

1 1 murex 16.1


3 4 misys 12.5

4 3 Bloomberg 12.4

5 5 numeriX 11.3

Interest rates2010 2009 Dealer %


2 2 murex 15.0

3 4 misys 12.6

4 3 Bloomberg 12.1

5 5 numeriX 10.9

Hybrids/Cross-asset class2010 2009 Dealer %


2 2 murex 15.4

3= 3 Bloomberg 13.1

3= 4 misys 13.1

5 5 numeriX 12.8

Derivatives pricing and risk analytics


Risk management

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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.

How the survey was conducted

Commodities (front-to-back office)2010 2009 Dealer %

1 1 murex 18.9

2 – Bloomberg 16.2


4 3 misys 13.4

5 4 Calypso 10.5

Credit (front-to-back office)2010 2009 Dealer %

1 3 murex 17.6


3 4 misys 13.2


5 1 Calypso 12.3

Equities (front-to-back office)2010 2009 Dealer %

1 2 murex 17.6

2 3 sophis 15.7


4 4 misys 13.7

5 – imagine 11.6

Foreign exchange (front-to-back office)2010 2009 Dealer %


2 2 murex 17.4

3 3 misys 14.6

4 – sungard 11.8

5 4 Bloomberg 11.5

Interest rates (front-to-back office)2010 2009 Dealer %


2 1 murex 17.9

3 3 misys 15.0


5 4 Calypso 10.6

Hybrids/Cross-asset class (front-to-back office)2010 2009 Dealer %


2 1 murex 16.2

3= 3 misys 14.2

3= – Bloomberg 14.2

5 5 sungard 10.2

Application service provider2010 2009 Dealer %

1 2 Bloomberg 19.2


3 1 imagine 13.7

4 – misys 12.9

5 5 sungard 9.9

Data vendor2010 2009 Dealer %

1 1 Bloomberg 18.9


3 3 markit 14.6

4 – interactive Data 11.9

5 4 telekurs 11.6

Implementation efficiency*2010 2009 Dealer %


2 – murex 14.2

3 – misys 11.6


5 – imagine 10.3

After-sales service*2010 2009 Dealer %

1 – murex 16.3

2 – misys 15.1


4 – algorithmics 11.4

5 – sungard 10.6

* Not in 2009 rankings

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Measuring risk along individual business lines can lead to a distorted picture of exposures. At Algorithmics,we help clients to see risk in its entirety. This unique perspective enables financial services companies tomitigate exposures, and identify new opportunities that maximize returns. Supported by a global team ofrisk professionals, our proven, enterprise risk solutions allow clients to master the art of risk-informeddecision making through the science of knowing better.

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Not all risks are worth taking.

Proven Enterprise Risk Solutions

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