Sell-side risk management systems need an overhaul, finds new report

A recent study warns that firms are out of sync with market dynamics, with responses lagging the real time demands of current day markets, while fragmented legacy systems are hindering their ability to manage volatility.

A recent study by Acuiti, conducted in partnership with Sterling Trading Tech, has found that sell-side risk management requires an update to consolidate systems and incorporate the increased importance of margin into risk calculations.

The study, which surveyed 55 banks and broker-dealers worldwide, found that fragmented legacy risk systems are hindering firms’ ability to respond to increased volatility across global markets.

Acuiti noted that current volatile conditions are forcing market makers to be more vigilant about collecting margin calls and that existing infrastructure needs to be upgraded across much of the industry.

Survey data found that 73% of respondents used between two and five risk systems, demonstrating the burden and complexity of legacy infrastructure that firms have adopted over the years.

The study also found that firms are increasingly out of sync with everchanging market dynamics, with 64% of respondents taking over a week to implement risk and margin policy changes in their systems.

Risk committee changes to parameters were also found to lag the real time demands of current day markets.

Looking at improving efficiency, 78% of respondents said they believe a more dynamic risk and margin policy would help overall competitiveness.

“Legacy infrastructure has accumulated at sell-side firms over the years through acquisitions and siloed business lines,” says Ross Lancaster, head of research at Acuiti.

“This has led to costly and burdensome operations that often fail to keep pace with client demands for cross-assert trading strategies and miss the operational efficiencies of more consolidation and real time oversight.”

Acuiti notes that legacy infrastructure has often become so embedded in firms that even if they want to overhaul it, the operational challenges are too big. Imaginative solutions will be required, which can onboard new risk models while also avoiding costly and drawn-out integration periods.