RiskTech Forum

Financial Markets – Technology As Enabler To Restore Confidence?

Posted: 7 February 2013  |  Author: Rakesh Shetty  |  Source: SAP

Where do we stand today?

When talking to colleagues and friends that work on Wall Street and the London financial district and my own visits to the financial district during the “Occupy Wall Street” movement, I remember vividly the experiences of being jostled by hundreds of activists who challenged the need and relevance of financial markets in our economy.

When I take a step back from my daily routine and think about this topic, I realize that investors continue to question if the financial markets are transparent and whether the system fulfills the key of role deploying capital to drive opportunities that promote growth and create jobs for the broader economy.

Despite recently announced record results by Goldman Sachs and strong results by JP Morgan Chase, experiences like the “London Whale” continue to negatively influence investor appetite for investing in the financial markets.

Have we turned the corner?

Despite stagnation in the number of first-time claims for unemployment benefits in the US, investor sentiment may be shifting. On January 23rd, 2013, the Dow and S&P 500 finished the week at their highest levels since December 2007.

It may be a case that investor appetite for higher yields faced with record low interest rates is driving the shift of funds from safe haven assets such as bonds to riskier assets like stocks and commodities. Does this mean securities firm and trading desks at major banks are off the hook? There is a lot of debate on this topic.

I contend that capital markets firms need to continue developing trading and risk management strategies that restore investor confidence and belief in the financial markets. These need to be complemented by longer term employee compensation plans that focus on risk adjusted rewards.

It good to see that leading firms such as JP Morgan Chase are embracing this approach as highlighted in this recent story.

Can technology play a role?

Trading desks at financial institutions worldwide have always been leading adopters of technology innovations. Cloud based solutions, mobile applications and in memory database applications are touted as the “cure all” for all our technology needs.

It is interesting to reflect and remember that cloud based solutions for market data services have been the norm at trading desks for over two decades.

Can capital markets leverage innovative technologies to develop use cases that enable them to better manage risk, performance and compensation planning and thereby restore investor confidence?

SAP has been working with leading capital markets firms worldwide to develop use cases that enable traders and risk managers to design products and simulate trading scenarios to deliver results in line with performance plans set for the trading desk. The solutions incorporate a range of innovations including mobile technologies, in memory database applications delivered on a real time data platform and cloud based solutions.

Trading & Risk Management

Firms are exploring use cases leveraging trading and analytics applications on a unified real time data platform to design innovative trading strategies. These strategies look at diverse data streams incorporating structured and unstructured data such as market data, corporate events data, and sentiment analysis on social media sites channels to identify investment opportunities for institutional clients that deliver investments returns above the market average.

Risk Mitigation & Real Time Alerts

The same technologies enable the simulation of multiple valuation scenarios for a portfolio in real time. The outcomes that exceed risk thresholds set by risk managers are routed as “alerts” to key executives on their mobile devices to flag potential “rogue trading” activity.

Performance Planning

Capital Markets firms are also increasingly exploring cloud based solutions for employee development and longer term compensation planning to roll out risk management guidelines and tightly align trading floor strategies to risk adjusted reward and compensation planning. Learn how BlackRock raises the talent bar with partnership and innovation.