Software product of the year ADAPTIV, SUNGARD

If banks weren't aiming to manage their counterparty credit exposures and credit limits on a global basis before, Basel II gives them plenty of incentive to do that now. But it can be a huge task. Take the merchant banking division of Belgium's Fortis Bank – in 10 trading centres, from Brussels to New York, it undertakes around 5,000 trades a day that it wants to check in real time against 15,000 limits for more than 5,200 counterparties. To achieve this, it requires a technology that is scalable, reliable, high performance and can operate around the clock, but at the same time can be integrated with a host of different trading and risk systems across the firm. Like a number of other major international banks recently, Fortis turned to SunGard and its Adaptiv Credit Risk platform to solve its problem.

Adaptiv is a modern version of an old idea, but one that has taken advantage of today's advanced technologies to provide the kind of powerful but flexible application that banks need for managing their credit exposures. When SunGard bought the Risk Exposure Management (RXM) system from GE Information Services in 2000, it was a product at the end of its natural life. However, it embodied concepts that appeared relevant for the future of financial trading – a centrally hosted system that provided integrated limit checking for global organisations.

What SunGard did was to rewrite the system using Java and Microsoft's .Net component and web-based technologies, and C++ programming language. It retained the central hosting concept but under the new guise of an application services provision (ASP), and exploited web technology to simplify deployment and operation of the application. And it built this on top of a multi-tier architecture, where processing computers can operate in clusters for volume and high-performance processing. The infrastructure can also be scaled up to meet growing demand – SunGard has benchmarked the system as capable of real-time pre-deal limit checking of 95,000 deals an hour.

Juerg Hunziker, president of SunGard's trading and risk operating unit, says: "Adaptiv is a modern approach to credit risk management that helps clients implement consistent and global credit risk management processes and measurement methodologies in order to help reduce risk management costs, improve transparency, expand business opportunities without increasing limits and reduce total portfolio risk."

Initial sales of Adaptiv to banks such as WestLB and ING were as replacement systems for RXM. But as these systems have bedded down and begun to prove their worth, other institutions, such as South Africa's Standard Bank, have started to look for technology that can meet their increasingly demanding credit risk management requirements, and have turned to Adaptiv. Over the past year, Australia's Westpac and Canada's Bank of Montreal have also chosen the system, while Fortis, National Australia Bank and ABN Amro have gone live with their deployments, bringing the total number of users to nine. In addition, the Netherlands' Rabobank and Germany's Commerzbank have taken the analytical component of the system, which includes SunGard's innovative MC2, a fast Monte Carlo approximation technology to speed up credit exposure calculations.

Banks now want to manage their credit risk holistically, and the implementation of systems to achieve this will inevitably cut across the entire trading activities of banks. As such, although Adaptiv makes use of modern open technologies for ease of integration with other systems and operates on a hosted ASP model (although it can be installed in-house, which one client has done), it takes some time to put in place. Fortis, for example, took 14 months to go live, with the system undertaking pre-deal limit checking, exposure measurement and limits updating, violation management and credit risk reporting of all deals. But the effort has been worth it. "Adaptiv helps us streamline processes and to better manage and control our credit policies, while helping to reduce operating costs and minimising unfunded risk," says Charles Courouble, head of risk at Fortis Merchant Banking.

For National Australia Bank, Adaptiv provides the means for the organisation to monitor its credit limits in real time. "The implementation of Adaptiv has provided us with an integrated framework to monitor our global limits in real time and respond to trade-related activity," says David Kerr, head of strategic development in credit risk management at NAB. "Adaptiv helps us to satisfy within seconds traders' requests for pre-deal limit checking and to send warnings and credit line availability levels back to the traders in real time."

The ability to manage credit exposure data consistently for all counterparties, products and industries across its international and domestic operations was key to Standard Bank's choice of Adaptiv. The ASP model was also important in the bank's choice, partly because of the reduced upfront investment and lower maintenance costs of the software. "We selected the ASP-based delivery model because it provides a complete solution approach that includes software and the necessary supporting operational, capacity planning and business contingency services," says Neil Holden, director for risk management in London for Standard Bank.

With credit risk management a central concern of banks in meeting their business objectives, as well as their obligations for Basel II and other regulations, SunGard's Adaptiv provides institutions with a viable alternative to lengthy and costly in-house development.