In order to help hedge funds and investment banks better understand risk management methodologies for emerging markets, SunGard, a software and technology provider, defined 6 trends that will shape operations for commodities trading in the next 12 to 18 months.
A factor considered in interpreting the trends include studying techniques used by hedge fund managers in dealing with the slow growth in the commodities market following 10 years of steady growth, says Matthew Healy, SVP and general manager of capital markets business at SunGard.
Hedge fund managers are also diversifying trading strategies when investing in emerging markets. Healy says, “The lack of growth has prompted them to use a more sideways pattern and start diversifying their strategies a little bit. So it’s not just a long view of volatility in the market.”
The second trend, according to SunGuard, is the growing need for smaller or midsized firms to adapt collateral management systems in hedging and trading operations in order to handle regulatory pressure for the OTC marketplace.
Trade capture and reporting systems must also have greater flexibility to replicate OTC trading conventions. In addition, reporting systems must also include real-time risk analytics due to the growth in high-frequency trading.
The need to manage real-time data in a timely way will continue to increase as the volume of data increases.
The final trend includes the need for banks to use a value-at-risk (VaR) system to calculate margins, rather than a formula.
“As these exchanges consolidate and product offerings expand, the system that was in place becomes unyielding to maintain” says Giancarlo D’Elia, analyst and client advisor in capital markets business at SunGard. “Risk methodologies like VaR become a market standard, but approaches like this allow firms to gage risk over a five year period, taking into account a number of different colorations, thereby quantifying the risk of their clients.”
SunGard has a team of analysts and project management teams that look at market data and engage with customers to define trends for financial firms.