Technology briefs

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New online buy-side risk tool

JP Morgan Chase last month unveiled MorganRisk, an online application service provider risk management tool aimed at pension plans, endowments, insurance companies, hedge funds, funds of hedge funds and asset management companies. The product will be fully commercially available in September.

Aside from the convenience clients should experience from outsourcing risk management architecture, the bank is betting there will be high demand to have access to the same market risk methodologies used by the investment bank, including the bank’s touted brands of value-at-risk and stress testing. Bank proprietary market data will also be used. “MorganRisk will provide all the necessary market data and use valuation models developed by traders, rather than by academics,” says Lesley Daniels Webster, head of market risk at the bank. “The result is a service that covers more assets, more accurately than other commercial vendors.”

Does that include JP Morgan Chase spin-off risk management company RiskMetrics, in which the bank remains an investor? MorganRisk product manager Anne Hitchman says RiskMetrics tools and MorganRisk are not directly competitive. “They are [RiskMetrics] approaching traders and desks a lot more than we would,” she says. RiskMetrics is also unconcerned. RiskMetrics spokesman Michael Thompson does point out that JP Morgan Chase is the vendor’s biggest customer. “We don’t know much about it... we wish them luck,” Thompson says.

Hitchman says MorganMarkets’ number one selling point is instrument coverage (wider, according to her, than available with RiskMetrics). The next selling point is JP Morgan Chase analytics, which, because they are not based on factor models, allow for easier risk attribution and more accurate analysis, according to Hitchman.

MorganRisk’s approach to VAR is unique, says Hitchman. At high confidence levels, VAR can be volatile and hard to manage to. Many adjust to the problem by tuning down their confidence levels – say from 99% to 95%. MorganRisk uses a ‘tail averaging’ methodology that allows the retention of a high confidence level.

MorganRisk is currently being reviewed for potential use by the JP Morgan Chase securities lending group and the bank’s hedge fund credit and prime brokerage groups. No external clients have been named.

Options pricing service for corporates

New York-based inter-dealer broker GFI has launched a new online foreign exchange options pricing service targeting corporates and other lower-volume forex users. The service – a scaled-down version of the company’s Fenics forex product – is being launched in response to an increased focus on forex derivatives by corporates, as they grapple with accurately marking derivatives positions to market for accounting reasons, says Nicola Williamson, Fenics FX Online product manager. “Not everyone needs the full power of the Fenics desktop, so this provides greater accessibility.” The subscription-based service uses the same data feed and technology as GFI’s Fenics FX platform, but offers three different pricing interfaces to gradually introduce corporates to advanced methods used to price options accurately.

Numerix pushes interoperability standards

New York-based analytics provider Numerix is forming a new company that will seek to accelerate definition and adoption of derivatives systems interoperability standards. CompatibL Technologies, which will be based in Princeton, New Jersey, will develop solutions for integration software and related technologies. The solutions will carry the flow of financial data between a range of internal and vendor systems and analytics packages. In addition, CompatibL will offer consultancy services and training packages.

Alexander Sokol, a founder and former chief technology officer of Numerix, will be president and chief executive officer of the new company. Sokol says there is an urgent need for an integration platform that allows different software systems to exchange complex financial derivatives data. “By bridging the gap between disparate data formats used by different software and analytics packages, CompatibL will dramatically improve the interoperability of different systems and their integration with open standards such as FpML,” he says. CompatibL will become the preferred integration partner for Numerix. It will also be a reseller of Numerix’s products.

Woori chooses Kondor+

South Korea’s Woori Bank, the country’s second largest bank, has signed an agreement with Reuters to use Kondor+ as its risk management tool for derivatives and bond transactions. Chong Yeob Park, general manager in investment banking at Woori, says the system will allow the bank to be more competitive in meeting the requirements of its client base, while also enabling the bank to better identify trading opportunities and manage all associated risks in accordance with regulatory requirements.

German consortium chooses Fermat

German mortgage bank Eurohypo has bought Paris-based Fermat’s risk management suite for regulatory risk, credit risk and asset/liability management. Eurohypo, which offers real estate and public-sector financing, was created in 2002 from the merger of Deutsche Hyp, Eurohypo and Rheinhyp, the real estate and public lending subsidiaries of Dresdner Bank, Deutsche Bank and Commerzbank. Following this, a new technical architecture was required, as well as a common software suite set to monitor risks and enable global business operations. Hans-Joachim Lübbing, project manager at Eurohypo, says the risk management suite will be used to handle current and upcoming regulatory and economic requirements, including the Basel II Accord and IAS requirements for asset/liability measurement and global credit risk monitoring.

Data issues central to Basel II outcomes, say experts at Risk’s London forum

Industry experts commenting at Risk magazine’s Basel II Forum in London agreed that data management was a critical issue in the successful transition to the new capital Accord. Dean Jovic, London-based group managing director, risk management/Basel II products at Pennsylvania headquartered software vendor SunGard, said SunGard clients have identified three key issues related to the Accord.

These are: the quality and consolidation of data; implementation of multiple sophisticated credit risk models; and implementation of an advanced economic capital framework. To achieve the functionality necessary for the internal ratings-based foundation, said Jovic, the validation framework must be rooted in a data system where data integrity and aggregation methodologies are the key issues. And he thinks banks have a long way to go.

Christian Terp, risk and compliance leader for IBM’s business consulting services group, said data and systems remain a huge challenge, one that will not be met unless banks start to develop a clear view of their target IT architecture now.

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