Portfolio and Risk Management Systems: Trends, Priorities, and Technology Strategies

by Cubillas Ding, December 1, 2010
Product Trends/ Reviews
Global, Asia-Pacific, EMEA, Latin America, North America

Abstract

Celent urges trading and investment firms to make smart investments towards superior market risk capabilities and systems to navigate the stormy conditions ahead. Reliance on bare standards from regulation is not sufficient.

The persistently fragile state of the banking system since the crisis and the trading environment in many developed markets have profoundly changed risk management operations. The practice continues to evolve, at the desk and enterprise levels. Current implementation efforts are designed to properly address the failures uncovered by the crisis, cater to emerging regulations, and strengthen risk management practices on the front line.

Markets remain volatile (despite riding higher), and sustainable growth remains uncertain. Forward-looking firms are driving both offensive and defensive efforts to streamline core business/IT and front- to middle-office risk management processes to achieve timely, data-driven, and risk-aligned decisions. This has resulted in the need to enhance and, in some instances, rearchitect next-generation risk technologies. Accordingly, technology vendors are refining their products.

In this report series, Portfolio and Risk Management Systems, Celent examines how market risk and trading functions continue to evolve, as well as what solutions and capabilities financial firms are moving towards.

“Despite the progress, what we have observed is that many of the responses to improve market risk processes, IT, governance, and controls have fallen prey to delivering short-term, often tactical priorities involving existing systems and their limitations,” says Cubillas Ding, Research Director at Celent and author of the report.

“Firms would do well to avoid falling prey to delivering what is ‘pragmatic and achievable’ as a knee-jerk reaction and instead, weigh best practice, longer-term priorities for the future,” he adds.

This multi-part series is a resource for firms delivering to requirements for regulatory change and market risk improvement programmes in the broader context of trading and investment risk. It should also aid firms selecting, implementing, or building out their trading risk applications and market risk systems. This report examines strategic perspectives related to technology architecture and application gaps and improvement areas. Finally, the report provides insights into solution dynamics and their impact on firms that select third party solutions.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

5

Not for the Faint of Heart: Market, Business, and Technology Realities

6

 

Overloaded Regulations

6

 

Drivers, Dynamics, and Market Trends

11

 

The Delicate Discipline of Balancing Priorities

19

Trends and Impact on Trading Risk Management IT and Operations

21

 

Organizational and Technology Sticking Points

21

Vendor and Solution Landscape:
A Post-Crisis World

26

 

Impact to Risk Management Requirements

26

 

Vendor Positioning and Demand/Supply Characteristics

27

 

Vendor Outlook in a Post-Crisis World: What This Means for Financial Institutions

30

Portfolio and Risk Management: Technology Spending

31

 

By Segment

31

 

By Geography

32

Rearchitecting Strategic Levers to Manage

33

Looking Forward

47

Appendix A: Product Coverage

48

Appendix B: Retooling and Requirements for Next-Generation Capabilities

49

Leveraging Celent’s Expertise

55

 

Support for Financial Institutions

54

 

Support for Vendors

54

Related Celent Research

55

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