Risk management and regulation have both changed rapidly in the post-crisis years, creating gaps for creative, nimble start-ups to fill. Often staffed by former practitioners, they tend to focus on one or more of the niche challenges of this new world, sometimes doing a better job than their more experienced competitors.
The challenge for incumbent providers is to retain and grow market share in spite of the competition from these upstarts. That requires a thorough understanding of multi-layered regulations, innovative ideas and heavy investment in technology. Murex ticks all three boxes – despite turning 30 last year, clients say the vendor has managed to move with the times.
"We have used Murex technology since 1999 and have integrated a lot of new business and functionality over the years, retiring other platforms to consolidate around Murex for trading and risk. Operating everything from one platform is very valuable to our business, and Murex has been proactive in releasing new versions and supporting our needs," says Viêt-Quê Vo-Dignard, Murex IT integrator at National Bank of Canada in Montreal.
Headquartered in Paris, Murex has 17 offices and more than 300 clients globally, with regional hubs in New York, Paris and Singapore. Over the past decade, the company has invested roughly $1 billion in research and development (R&D) with the aim of keeping MX.3, its flagship integrated platform, in touch with customers' changing needs.
The platform's functionality covers trading, investment management, treasury, operations and finance, collateral management and risk management across asset classes, and its user base spans banks, corporates, asset managers, sovereign wealth funds and central counterparties (CCPs).
The latest round of investment started in 2008, as Murex felt the financial crisis highlighted the need for integration of trading, risk and operations engines into a single platform. In the years that followed, MX.3 has supported its users in confronting multiple new regulations.
Among the most challenging transitions facing the risk management industry are the forthcoming Fundamental review of the trading book (FRTB), set for implementation in 2019, and the ongoing phase-in of margin requirements for non-centrally cleared derivatives.
We have used Murex technology since 1999 and have integrated a lot of new business and functionality over the years, retiring other platforms to consolidate around Murex for trading and risk
Viêt-Quê Vo-Dignard, National Bank of Canada
In February 2016, Murex unveiled its FRTB offering as part of MX.3, delivering support for market risk capital calculations under both the standardised approach and the internal models approach. It also tackles the regime's revised credit valuation adjustment framework, which adds significantly to the required computing power because of the number of sensitivities involved.
Murex tackles the performance challenge in three ways. First, using its experience in trading and pricing, it looks to reduce the number of calculations required. Second, it optimises those calculations, using orchestration and grid technology with graphics processing units (GPUs) to meet the performance requirements. And finally, it leverages in-memory aggregation technology to visualise and compute FRTB statistics in the final stage of the process.
"Because we are able to leverage our pricing engine and a deep understanding of positions and risk factors, we are able to analyse the full scope of what has to be computed under FRTB and then significantly reduce the number of calculations, which eases the burden on hardware," says Bruno Castor, head of market risk at Murex.
While adjoint algorithmic differentiation (AAD) is being adopted in some parts of the industry as an alternative to GPUs, Murex has decided not to adopt it for the time being. "We have tested and analysed the impact of several technologies in R&D, including AAD, and will use it in the future if we feel there is a need, as AAD is one tool among many. But it is not suitable for FRTB and we have developed a high-performing, effective offering without it," says Castor.
Margin is another area where regulation and practice is in flux. Murex kitted out one of the 20-or-so major banks that was subject to last September's initial margin deadline – facilitating the processing of margin calls and connecting the bank to new market infrastructures – and is now working with a number of clients on the March 1 start-date for variation margining.
Central clearing has also been an area of focus for Murex in recent years, and the flexibility of MX.3 enabled its adoption by LCH to replace legacy systems and enhance the risk management capabilities of its SwapClear CCP for interest rate swaps.
Murex's platform strategy includes a number of core services that are common to all clients, with additional services for particular client types. LCH used a dedicated clearing service developed for CCPs, which leverages Murex's market risk engine and supported the rapid growth in cleared volume on SwapClear since implementation in 2011.