These discussions often look at only one what-if scenario: what if these firms were about to go out of business? Would they take other organizations down with them? Would the effects significantly disrupt the markets throughout the country and around the world?
We also need to look at the situation before the business gets to that point. That leads to another important question that my colleague Tony Scianna and I have been thinking about: Can an organization become “too big to manage the risk”?
He believes this will involve providing transparency around assets, liabilities, collateral, liquidity, etc. (rather than position transparency) and says this information should already be available from existing enterprise risk management systems. Is it?
Financial regulation and risk were two of the biggest buzz words in the news over the past week. One blog post that I found particularly compelling came from the Waters Cooler Blog. Titled Making Risky Behavior Less Risky, it quotes comments that TowerGroup’s Stephen Bruel made on regulatory reform and managing risk.
As regulators move closer to drafting specific rules around the derivatives market, it is important to remember one of the key drivers behind regulatory interest: risk. As the failure of Lehman Brothers has shown us, risk can take many forms. You can find examples of operational, counterparty, market, and asset class specific risk, among others.
Whatever the details of the new regulations, it has become clear that the biggest impact will be around the need for real-time information, whether that relates to counterparty exposure, margins, risk reports, or other areas. It is no longer sufficient to wait until tomorrow or next week or even end of day to calculate your margins or determine your positions.
Earlier today I had the pleasure of speaking with Inside Reference Data via a Twitter interview session. The questions focused around data and some of the challenges firms are facing and What Happens Next in reference data. The interview was grouped under the #IRDSUNGARD hashtag, but I have the transcript below for you to review.
Everyone talks about market volatility, more stringent regulation and the global management of credit. But even as these new challenges reshape this industry, financial services firms continue to face familiar issues, too: the pressure to reduce costs, demanding clients, industry consolidation, and increased growth in trading, particularly in the global futures and options market. Have firms adjusted their technology and business strategies to reflect this new environment?