ING Bank Goes Live With Summit Global Risk Management System

Netherlands-based ING Bank, Europe's fifth largest bank, has gone live with the first of a series of proprietary global risk management modules as part of its global Trading Risk Management Systems (TRMS) project.

The TRMS project is being led by a project team out of ING's Amsterdam headquarters. It aims to provide consolidated market risk management and reporting for the range of ING's global treasury and capital markets operations.

ING's TRMS is being built jointly with New York-based risk management systems vendor Summit Systems.

Summit's technology is also being used by ING and its securities subsidiary ING Barings to support desk-level interest rate emerging market derivatives trading (Derivatives Engineering & Technology, March 3).

Emerging debt

ING has rolled risk applications supporting emerging market debt, equity and derivatives trading out globally in production to its primary overseas dealing centres.

The TRMS risk project team is now preparing to move a comprehensive set of global interest rate risk management systems into live production.

It will then begin pilots of Summit's foreign exchange enterprise-wide risk system, an effort that should be complete by year end, says Guillaume Van der Linden, ING's head of global risk management.

The bank and its securities subsidiary operate major dealing centres in São Paolo, New York, London, Hong Kong, Tokyo and Amsterdam.

Overall, ING runs banking and trading operations in some 50 countries worldwide and has recently built new trading floors in London, New York and Mexico City.

The Summit-based TRMS platform supports for a range of alternative risk analytics, including a proprietary parametric value-at-risk measurement methodology similar to JP Morgan's RiskMetrics data service.

Additional market data-driven risk functionality includes support for historical simulation and user-configured, scenario-based stress testing VAR analytics.

ING also uses a parametric VAR methodology that can accurately analyse higher order, non-linear risk sensitivities for all but the most complex securities, claims Emmanuel Fruchard, head of Summit's financial engineering group.

When ING bought Barings Brothers' banking and securities operations just over a year ago, the Dutch bank's TRMS project plan had to be adapted mid-stream to incorporate Barings operations within its architecture, says Van der Linden.

Fortunately, Barings used open systems architecture standards similar to those espoused by ING. These include Unix-based applications and Sybase-based relational database systems, he adds.

Long relationship

ING's relationship with Summit began around three years ago, when the vendor was contracted to implement a customised version of its over-the-counter derivatives trading systems for the bank's New York branch.

This system now supports ING Barings Financial Products' New York derivatives operations. It is slated for implementation in ING's London dealing room in the coming months.

Nevertheless, Summit's prior relationship with ING wasn't the primary reason it landed the TRMS contract, says Van der Linden.

He cites several aspects of Summit's systems architecture as being more important factors, such as Summit's core set of prepackaged trading and risk applications and its hybrid object oriented/relational database design.

TRMS's risk applications and databases are being installed on Sun Microsystems hardware at local dealing centres and at ING's Amsterdam headquarters, according to Van der Linden.

Underlying local databases are synchronised with Amsterdam's centralised data warehouse via Sybase's replication server technology.

Managing the risks of emerging markets debt and equity securities highlight a number of challenges that banks are facing in developing enterprise-wide risk systems.

Developing risk models that incorporate liquidity, credit and operational risk measurement capabilities is particularly important in the emerging markets, where financial instruments may be relatively volatile and thinly-traded compared to their developed market counterparts.

Finding and accessing current market data for such instruments also poses challenges to emerging markets risk managers.

Reflecting the ongoing securitisation of emerging markets bank loans under a plan implemented by then U.S. treasury secretary Nicholas Brady in 1989, emerging markets bond trading grew 65 per cent in 1994 to $1.68 trillion, according to available figures from the New York-based Emerging Markets Traders Association (EMTA).

EMTA's survey also showed that in 1994, debt options trading was the fastest growing non-traditional debt market segment.

ING currently uses New York-based Bloomberg's remote systems service for front office emerging market bond support. A proprietary system supports equity and equity derivatives.

These systems generate portfolio risk sensitivity measures which are then fed into TRMS's underlying Sybase data warehouse for processing by Summit-based VAR applications, explains Van der Linden.

As well as its data model and pre-packaged object-oriented risk management applications, Summit's developers have built a range of proprietary application development, database and systems administration tools that clients use to tailor the system, he adds.