Morgan Stanley And Algorithmics: More Details

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Further details have come to light regarding Morgan Stanley's pilot of Algorithmics' RiskWatch global risk management system. The New York-based bank recently took a 20 per cent equity stake in the vendor (RMO, March 11).

Although Morgan Stanley and Algorithmics officials decline to comment on the capital infusion, a bank source confirms that Morgan has been assessing Algorithmics' technology for over two years and that the evaluation process is now "at an advanced stage."

Various groups within Morgan have expressed interest in using Algorithmics' flagship RiskWatch market risk management system, as well other vendor-supplied risk systems, for both desk-level and company-wide risk management purposes, the source adds.

At least two New York-based bank groups are known to be pilot-testing RiskWatch currently, including Morgan's enterprise-wide market risk group, the source confirms.

Although Morgan has traditionally relied on in-house development to build its software systems, another source says the Morgan pilot tests and equity stake in Algorithmics are a clear sign that it is increasingly keen to incorporate third-party application software within its systems platforms.

Algorithmics has been somewhat hampered by its lack of a strong sales/marketing and client support infrastructure. A source close to the vendor believes Algorithmics will use at least some of the Morgan-supplied capital to build up these areas.

One source notes that technology transfer is a potentially important underlying aspect of the Morgan project and investment. Adding Morgan's developers to the list of programmers using Algorithmics' Risk++ object libraries effectively adds to its development staff and will serve to further strengthen the vendor's product line.

On the systems development side, Algorithmics has recently completed building dynamic loading capabilities into RiskWatch's systems architecture.

Dynamic loading enables users to extend or modify existing application modules or add entirely new ones during runtime systems operation without the need to recompile the entire system, according to an Algorithmics spokesperson.

External modules

The spokesperson cites the example of a Boston-based RiskWatch user that dynamically loads external, C-coded mortgage-backed securities valuation modules from a remote source into RiskWatch and then evaluating its portfolio holdings locally using the dynamically loaded modules.

"This is a product that doesn't know anything about mortgage-backed securities but can dynamically run applications that do. It captures the data relevant for further risk analysis and reporting purposes," the Algorithmics spokesperson claims.

Recognising the substantial systems integration and data aggregation problems facing enterprise risk management systems development efforts, Algorithmics has developed a series of open application programming interfaces to address these issues.

These include: an open finance API; an open applications API; an open data source interface; ASCII and binary file APIs; as well as an SQL interface used to connect to relational database systems.

Bank of Nova Scotia in Toronto is making somewhat novel use of Algorithmics' technology. The bank's financial engineering group, which is led by Mike Durland, is using RiskWatch and Risk++, Algorithmics' risk object class library, in concert with proprietary data visualisation software and Silicon Graphics development toolkits and graphics hardware.

This set-up is used to design and hedge hybrid securities and other structured derivatives for its global client base (Derivatives Engineering & Technology, November 27, 1995).

Similar platform

Morgan's market risk group is using a similar platform in developing its internal value-at-risk (VAR) enterprise risk management and reporting systems infrastructure (RMO, February 12).

The market risk group has built its systems platform around Illustra Information Technologies' object-oriented database and Logical Information Machines' relational databases running on Sun Microsystems and Silicon Graphics workstations.

These currently generate a daily set of historical simulation-based hard copy VAR market risk reports.

This project team is now working to enhance the platform by building links to Visible Decisions' RiskDiscovery and internal real-time transaction and market data sources.

Morgan's risk group is also planning to use Silicon Graphics' WebForce Internet application development toolkit and Sun's Java Internet programming language. These tools will be used to develop risk management applets that draw on each of these systems to deliver interactive risk management functionality to business units worldwide.