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Only 23% of Buy Side Can Perform Intraday Calculations

According to a SimCorp poll, 83% of buy-side respondents place a high importance on the ability to perform intraday calculations, but only 23% are able to perform these calculations.

According to a recent poll of more than over 60 capital market executives by SimCorp, a provider of investment management services, 83% of buy-side respondents place a high importance on the ability to perform intraday calculations, but only 23% said they are able to perform these calculations.

Intraday calculations help firms better comprehend the impact of market events on their held securities during trading hours, rather than wait for an end of day report. The ability to perform intraday calculations impacts a variety of business decisions, including NAV calculations, the ability to post and optimise collateral, and perform more accurate risk analysis.

These inabilities leave investors exposed in the event of a market readjustment, commented Duncan Cooper, director of business consulting at Sapient Global Markets in the press release. For example, when Lehman collapsed six years ago, counterparties didn't immediately know the extent of their losses and were therefore unable to strategize to mitigate the damage.

According to Sapient and SimCorp, it's worrisome that years after the Lehman collapse over three quarters of the polled firms are in no better position to perform real-time risk management. This also leads to negative impacts on investor confidence, and explains why Sapient is seeing an uptick of asset managers asking for intraday trade reporting tools to both boost stakeholder confidence and gain a competitive advantage.

"Clients are calling it many things," says Mark Israel, investment management practice lead at Sapient Global Markets in an interview. "What they're asking for looks just like an Investment Book of Records (IBOR) but they're not calling it that." Instead asset management clients are asking for real time data warehouses, or real time risk data storage, or a real time position security master, "Sometimes they want it organized by fund, by strategy, by manager, and they need it by all different ways, and that's what really causes them to say we need something that looks like IBOR, but isn't."

He adds that IBORs were mentioned frequently six to eight years ago, but following the crisis was left off the priority list because of the industry's focus on cost reductions. Today, more frequent trading of different asset classes like deritvatives has put real-time positioning to the forefront of risk management.

"A large number of firms question if they are nimble and agile enough in operations to trade new instruments," he says. That means having things like real time positions and position keeping so they can do things like collateral management, optimization, and make risk-based investment decisions.

Furthermore, a large number of CIOs, COOs, or whoever is responsible for risk are asking how do they leverage real-time risk data to make the right decisions. "A lot of asset managers are looking at what types of risk they need to report, and how to report it on a more regular basis."

Israel believes the 23% that said they are able to perform intraday calculations are using advanced strategies that require real-time information, or they realize they need that to get maximum returns or streamline operations.

"My gut is there's another 25 percent or 50 percent trying to get there but they don't have the budget or coordination." The remaining 25% don't believe they need it now. Perhaps someone at the top believes that's now how they do business, that their strategy is more long-term stock picking and not about real time data. "Maybe they don't need it now, but that starts changing when it comes to what assets they start trading and holding."

Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio

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Becca L
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Becca L,
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10/30/2014 | 12:05:45 PM
Re: Lehman's Influence
Acquiring the data is the tip of the iceberg!
 
IvySchmerken
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IvySchmerken,
User Rank: Author
10/30/2014 | 12:02:41 PM
Re: Lehman's Influence
You raise a good point. Shifting to intraday NAV and intraday risk calculations could require changes in workflow when these processes are conducted. Multiple asset classes could be involved.  Even if vendors are able to turn on the feeds, large buy side players typically run the analytics in house. With many projects related to compliance, perhaps this was not viewed as a priority.
Becca L
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Becca L,
User Rank: Author
10/30/2014 | 11:15:04 AM
Re: Lehman's Influence
And the budget issue kicks up a notch when you think about the many different types of asset classes managers are trading now. That means extra data feeds from suppliers, extra analytics and tools to incorporate the data to run the calcs. Vendors these days are always offering the ability to just "turn on and off" a new data feed at ultitly cost models, etc, but it sounds like the challenge is bigger than that bit of the process.
IvySchmerken
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IvySchmerken,
User Rank: Author
10/13/2014 | 9:56:01 AM
Re: Lehman's Influence
Net asset value (NAV) for mutual funds used to be an end-of-day calculation. But since the financial crisis, intraday NAV has gained some traction. Also, firms are required to get prices from different independent suppliers. It is odd that more buy side firms have not invested in intraday risk calculations. Perhaps this is a budget issue.

 
Byurcan
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Byurcan,
User Rank: Author
10/13/2014 | 9:31:55 AM
Re: Lehman's Influence
Yes, I would think most investment firms in this day and age can perform, or would be perfomring, intraday risk transactions.
IvySchmerken
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IvySchmerken,
User Rank: Author
10/10/2014 | 11:09:14 AM
Lehman's Influence
The collapse of Lehman Brothers has woken up investment managers to the fact that they better get real-time in terms of analyzing risk. But even with such a powerful catalyst, it's surprising that only 23% of the buy side can perform intraday risk calculations, while another 25% might be considering this for the future. Yet buy side firms are asking for things like risk datawarehouses and other intraday risk management to analyze funds and positions. Despite the popularity of the term IBOR - Investment Book of Record, it sounds like the concept is evolving into more of real-time risk management tool.
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