It is understood that in today’s fast-paced financial services environment, organizations that have access to the latest information have a significant advantage. But it’s not enough to simply make deals—assessing risk and predicting outcomes has become a major staple of any winning transaction. With GigaSpaces XAP, enterprises can detect and manage risk in real-time across countries and locations all in one easy-to-use platform.

When it comes to the latest developments in risk management data solutions, here are just a few of the areas in which GigaSpaces XAP can help:

Meeting market regulations

Broker-dealers in the U.S. need to know their client’s aggregated credit standing across all trading venues, systems, and asset classes before releasing orders to the market. Canada has a similar rule, and the European Union is going down the same route with MiFID II. For example – the Market Access Rule (Rule 15c3-5) requires brokers and dealers to have risk controls for market access.

Using a secured private data cloud powered by XAP’s in-memory computation fabric is the most cost effective solution to managing risk for high-frequency trading (HFT) firms. Its ability to handle complex data model absorbing vast amounts of data without any downtime makes it a perfect data fabric infrastructure. Asset classes covered by the MAR rule are equities, equity options, exchange traded funds (ETFs), debt securities, and security-based swaps—all of these can use XAP to meet the regulations.

Data integrity

Broker-dealers are also struggling with the volume and integrity of data. Since the circuit breaker program began in July 2010, there have been many Volatility Trading Pauses, which indicates that bad data has gotten into the marketplace and that participants are reacting in turn.

XAP real-time data validation addresses this challenge by collocating validation rules with the data executed once data arrives into the system. Regardless of volume and needs, with XAP, you have access to the latest validated data in real time.

Avoiding overnight calculations

Most financial institutions still rely heavily on overnight calculations; this means people at the firm are often forced to make decisions based on stale, day-old data. As such, they cannot accurately calculate market risks, credit value adjustments, and potential future exposure in real-time or even near real-time.

While massive computation is typically performed using powerful compute grids overnight, with the latest technological advancements that have been made, scaling the solution to meet ever-increasing loads should no longer rely on direct access to the compute grid. Instead, we can store the data in memory for real-time access, and at the same time, the data is highly-available and easily scalable and will maximize use of the organization’s private cloud. With XAP, you get a high-speed, cloud-based computing fabric, which can support billions of calculations within a split-second.

A labyrinth of connections

High-frequency trading firms deploy a labyrinth of connections, which has implications for risk management. One approach is to enable market participants to supplement internally-generated data by gathering real-time order and execution data from all liquidity destinations.

XAP as a real-time data store is a perfect solution addressing this challenge. With XAP, the whole process is simplified into one platform.

Real-Time Risk Management for Financial Services

Variety of data formats

Many investors and investment managers find it challenging to form a complete understanding of market positions and performance on a daily basis across all asset classes and strategies they are managing. The data management challenge is there, especially with data inputs at different times and in different formats.

XAP’s ability to consume and process in real time any type of data format (SWIFT, MT, SWIFT MX, FpML, FIX, JSON, XML, CSV, Binary, Fixed Length, ISO20022, Bespoke, etc.) makes it a natural fit for such systems.

Global connections

Leading financial enterprises are not confined to one city, let alone one country. Keeping everyone in the loop regardless of location is never easy.

With XAP’s WAN gateway, global organizations can share customer profiles, positions, etc. in real time between remote sites allowing the end users (traders, quantitative analysts, etc.) to make informed decisions on the most recent data. The gateway allows for fast access to the data while avoiding remote access issues, even across oceans.

Counterparty risk 

To address counterparty risk, firms must have a view across their entire business to see their true exposure to counterparties; this is where effective data management tools have a major role to play. XAP’s ability to generate real-time alerts on incoming data is a fundamental instrument to facilitate such effective data management. In fact, as recently as October last year, $430 billion across five currencies at six big banks was saved when a third-party was able to address counterparty risk. This is an area that those in the financial services sector simply cannot afford to ignore.

Intelligent RT fraud detection

For fraud detection systems, the ability to function in real time is critical. For a credit card application or an ATM transaction that may be approved in seconds, all of the data must be ready. A smart rule execution, machine learning system can run a series of queries in a split second. XAP can handle virtually any type of a query by unlimited current sessions in literally a millisecond—no matter the load and query complexity.

Legacy data warehouse technology is long gone

The legacy Data warehouse approach is too slow and too costly to be sustained in today’s business environment. These systems are challenged by maintenance overheads and the latency and timeline aspect, as these are usually batch-oriented systems rather than being intraday and event-driven. As a result, many organizations are now looking at a virtual data warehouse approach, using software that would allow comprehensive data to be accessed as if it were collected centrally.

This approach enables a dashboard look-through, slice and dice for business analytics. XAP provides this via its integration with tableau and zeppelin and other data visualization tools.

The only constant is change

The reality is that whatever system you’re building today to deal with risk measures, it won’t be long before it’s going to need to change again. The only constant in the Financial industry is that things are changing.

XAP’s agility and flexibility allow users to reshape the data model and business logic without any downtime. With no downtime, it allows the business to resume even when there is a need to introduce new functionality.

Real-time evaluations: Completing stress testing in seconds instead of hours

To correctly predict cash flow changes, banks of today need to develop the capability to run through all possible scenarios and outcomes quickly due to the uncertainty of future value fluctuations of transactions. Scenario analyses, as well as stress tests, can handle the evaluation of transactions and their risks given uncertain general conditions. Scenario assumptions must be formulated in a brief and focused way for groups of transactions with shared characteristics. Not only this but also, both future transactions and changing evaluations and cash flows must be simulated in line with flexible, clear rules. Moreover, they should be available in real time.

Using XAP to implement real-time evaluations eliminates the need for any guesswork or workarounds. In other words, what-if scenarios for as-yet incomplete transactions are now possible. Decision makers can simulate the effects of new transactions on risk and understand the influence of various market developments and their implications for risk strategies. The results of the analyses are available up front, leaving ample time to influence the daily decisions of risk managers, traders, and other stakeholders.

Managing risk with XAP

In today’s challenging climate, risk analysis of financial trades and positions is critical for financial institutions. If you can reduce risk calculation time, settlement risk, and operational cost, you’ll be that many steps ahead of the competition.

Over the past few years, we have further developed XAP’s intelligent and active in-memory data grid for risk management specifically to manage the calculation lifecycle and stream results back to the client as they arrive in real time, thereby leading to a significant advantage for any financial institution using it.

Learn more about how GigaSpaces XAP can help you manage your risks in real-time.

Real-Time Risk Management for Financial Services
Shay Hassidim
Deputy CTO @ GigaSpaces
Shay joined GigaSpaces in 2003, and has more than 20 years of experience in the software industry. Shay is part of the product leadership team and oversees the technical activities of the US operations, serving as Deputy CTO Distinguished engineer, escorting the pre-sale and post-sale activities.
Tagged on: