Once again, some of the best football teams in the world have just bombed out of the World Cup – I’m referring to the USA... As an aside, England is gone too – in part due to FIFA’s technological ignorance and monitoring from the dark ages. The technology
exists to help the ref make better judgement calls – why are they not using it? This is a common scenario in many financial institutions (see what I did there?), who are not using technology effectively with their own credit and limit monitoring – and as a
result, are trading over-conservatively.
With shrinking margins and a more competitive business environment, agility and accuracy are increasingly important when trading financial products. Now, more than ever, institutions want to trade right up to their limits, to ensure that they are utilising
their assets as completely as possible. But ever increasing trading volumes are making it more and more difficult to ensure that risk is mitigated while trading potential is maximised.
Further to this, algorithmic and electronic trading are fuelling the existing surge in trading volumes. Analyst house, Celent, expects average daily FX volumes to rise from US$2.9 trillion in early 2009 to US$4 trillion this year.
It isn’t surprising that in too many cases, the forwards are out-playing the midfielders, i.e. limit monitoring and credit risk operations simply can’t keep up with the front office – resulting in institutions often not finding out what their exposures until
after the trading event. Rising trade levels will only add to this issue. Throw in the fact that many institutions are operating multiple, disparate, legacy systems across disjointed business lines, with geographically-siloed data streams, and you have
quite a challenge. The real result of all this is that traders and managers lose agility and run the risk of being too conservative – yielding significant opportunity cost.
Institutions are now turning to a real-time approach, which gives them the ability to roll up through multiple hierarchies of data, managing credit limits by trader/asset class/counterparty – identifying the players who are offside. Most importantly, treasurers
need to be able to step back to see the global credit overview of the entire institution, without losing granularity of more specific data.
Rather than waiting for the post-match analysis, with up-to-date credit information consistently available, traders and compliance officers have the tools to deal with data on a real-time basis. This continuous view of exposure moves limit and position monitoring
to an earlier point in the game – increasing effectiveness and decreasing the likelihood of trading limits breaches and penalties.
More effective credit and limit monitoring has the further effect of ensuring regulatory requirements are met and no red cards are drawn. It also demonstrates a more sophisticated and calculated approach to trading, helping to allay fears over recklessness.
Essentially teams that implement real-time solutions will better manage credit, exposures and, importantly, their reputations. Gaining these benefits in today’s high volume, low margin environment is paramount if financial institutions are to retain business,
win business, maintain high client satisfaction, and score.