Rise of the Real-Time, Cloud-Based Risk Engines


For the first time, hedge funds, brokers and clearing firms, regardless of size, can have the same performance and sophistication of larger rivals, but at a lower price point with RaaS (Risk-as-a-Service).

In the past, real-time risk analytics on large diverse portfolios have been prohibitively expensive for all but the largest firms. With the advent of cloud computing, that is rapidly changing industry-wide.

Ravi Jain, Sterling Trading Tech

Old, expensive regimes of bulky hardware, specialized software and in-house developers are giving way to RaaS, cloud-based systems which use powerful algorithms to calculate market and credit risk in real-time. “Most risk systems have historically been installed systems,” said Ravi Jain, Director of Risk & Derivatives at Sterling Trading Tech. “Providing real-time risk and RaaS is the way of the future.”

The “as-a-service” model for risk isn’t new; what’s new is building such a service on the latest cloud-computing technology and data-management techniques. “The old batch-processing method could take hours,” Jain said. “There’s no need for that anymore. Risk analytics can be available on a real-time basis.”

Jain noted risk-management machinations such as ‘Greek’ measurements, stress testing, and shock modeling often are common across firms, which supports the case for RaaS. “If you look at one broker to another broker, or one hedge fund to another hedge fund, their risk analytics are fairly similar,” Jain said. “If everybody is installing their own software locally, that software is often end-of-day, rather than real-time as real-time processing involves much more sophisticated hardware and software that was out of the reach of many firms before the advent of RaaS.”

TradingBlock, a brokerage and technology provider for active traders of equities and options, sees sophistication, cost savings and ease of use as primary advantages of cloud-based risk analytics. “It is a lot easier to integrate than products we’ve used in the past,” said Don Ogilvie, Chief Operating Officer at the Chicago-based firm. “There’s not a lot of lifting on our side in terms of system integration.”

Don Ogilvie, TradingBlock

“Another nice thing is that it allows us to leverage the product out on an account level,” Ogilvie continued. “I can be looking at the same numbers as some of my larger clients who are dialed into their accounts on their own terminals. This is not easily delivered by traditional enterprise installed solutions.”

Vendor-provided risk systems from years ago were typically bespoke, installed and expensive. With the emergence of cloud technology, and a dispersion of intellectual capital that had been concentrated in big Wall Street banks, high-performing real-time risk systems are not only attainable for every financial firm but needed to keep pace with the demand to stay competitive and optimize risk.

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