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A Software Explosion at the SIA Show

This year’s SIA show was a Mecca for financial software vendors from around the world.

By Karen Spinner

Financial technology vendors gathered once again at this year’s SIA Technology Management Exhibition. And, as always, many firms tried creative strategies to attract potential buyers’ attention. Reuters put on a repeating skit, complete with professional actors and a group of Y2K consultants dressed up in pirate suits, and displayed a skull-and-cross-bones flag. More restrained participants came out with press releases and announcements—lots of them. The SIA show, in fact, became a point of convergence for everything new and improved and, in some cases, merged or acquired. Here are some of the highlights from this year’s show:

New products And services…

Many of this year’s new products seem to be “frameworks” and “servers” designed to provide a holistic environment in which a wide selection of applications can reside. This sort of unified-framework approach is intended to address problems associated with managing data that may reside in numerous sources and the sequential, consistent flow of both market and transaction data among multiple systems. If vendors last year searched for the “killer app,” this year they are searching for the killer architecture.

Meanwhile, a minitrend appears to be the low-cost availability of market data and pricing services over the Internet, a potential threat to premium market data vendors. Notable new products and services include:

TIBCO’s Market Data System for NT. Microsoft is making inroads into the financial services markets, and smaller vendors (that is, everyone else) should be scared. At the SIA show, Microsoft, TIBCO and Hewlett Packard cooperatively announced the release of TIBCO’s Market Data System infrastructure for Microsoft’s Windows NT Server operating system. Billed as an “integrated trading solution,” this new package of software and services will be an accredited part of Microsoft BackOffice and will include HP’s NetServer systems and technical services.

The goal of this new solution is to provide a prepackaged platform for systems integration and straight-through processing that uses TIBCO’s event-driven messaging to pass data automatically from one critical application to the next. “The Tower Group estimates that the growth of the Microsoft Windows NT Server in the securities industry in 1998 will increase 94 percent over 1997 figures, so we expect great interest from financial institutions of all sizes for the TIBCO solution,” says Matt Connors, Microsoft’s worldwide securities industry manager.

Elmbridge’s Enterprise Risk-Server. London-based Elmbridge, which specializes in regulatory applications and risk data management, has introduced the Enterprise RiskServer. The product is not an enterprise-wide risk management reporting tool, but rather a modular data management tool designed to ensure that numerous applications can access quality, consistently formatted data. Developed using Sybase’s Powersoft language, an enterprise 4GL, the Enterprise Risk-Server currently runs on the Sybase Adaptive Server Enterprise in a Windows NT environment. Elmbridge notes that the RiskServer can be used for enterprise and tactical data management requirements. Until the Enterprise RiskServer can accommodate other database platforms, including Oracle 8 and Microsoft SQL Server, its relevance will be limited to committed Sybase shops.

Algorithmics’ RiskEngine. Tor-onto-based Algorithmics, fresh from a successful user conference in sunny Madrid, has gone public with its new RiskEngine product, a CORBA-compliant analytic server designed to provide rapid computational capabilities to front-end client applications written in Java and Visual Basic. By providing real-time market risk management, mark-to-market and mark-to-future logic, Algorithmics hopes to serve customers who want to take advantage of its analytic capabilities to power internally developed and third-party applications. For Algorithmics, this strategy is a further departure from its strategy of offering turnkey risk management solutions.

Inventure’s RANGER Add-ins. New York-based Inventure Ltd. has just released add-ins for its RANGER distributed integration architecture. The RANGER platform takes advantage of Internet-based technologies, such as data caching, to integrate financial data and analytics. The RANGER Add-ins allow users to access the integrated RAN-GER environment through desktop applications, including Microsoft Excel, MathWorks, MathLab and MathSoft’s S-PLUS. Previously, users accessed the RANGER environment through the Ranger Client or through custom applications. Now, says Tom Fontaine, vice president of product development at Inventure, “Quantitative analysts and traders can access data and analytics from any RANGER server in the working enviornment they prefer.”

WhiteLight’s Risk Management Architecture. Palo Alto, Calif.-based WhiteLight, which offers analytic application servers to the financial services industry and several other corporate sectors, has just released what it is calling the Enterprise Risk Management Architecture. WhiteLight’s core technology includes on-the-fly data mapping and analytics. In other words, users can extract data from numerous sources in real time, run sophisticated calculations and “drill down” into the various components of these calculations, all the way to the transaction level. Previously, most financial institutions implemented WhiteLight both as an ad-hoc analytic tool and as a development environment through which they built, tested and distributed special-purpose risk management applications.

The Enterprise Risk Management Architecture couples WhiteLight’s core functionality with prepackaged modules, including the portfolio management module and the risk-adjusted profitability module. In theory, these modules can be integrated with local applications to facilitate shared analysis.

StreetMath.com. New York-based Tech Hackers has resurrected its StreetMath subscription service, which provides low-cost real-time pricing for a wide selection of fixed-income instruments, bonds and mortgage-backed securities. Users simply subscribe to Tech Hackers’ StreetMath.com web site and pay low monthly fees for access to on-line pricing services for only the specific transactions they require, and security is ensured through password protection and digital signatures. Prices are based on industry-accepted models and real-time market data from major vendors. The StreetMath service promises to be a popular option for mid-market financial institutions, which have focused pricing needs and cannot, therefore, justify the cost of a Bloomberg terminal or similar solution.

Upgrades

Microsoft isn’t the only company known for treating enhancements to existing products as breaking news. In fact, many financial software vendors used the SIA show as a vehicle to announce their latest and greatest releases. Some highlights include:

Panorama 98.1. Panorama, once the flagship risk management product for SunGard Capital Markets, is now being offered under SunGard’s Infinity umbrella. This new organization seems to have had a positive effect on the pace of Panorama’s development cycle. At the SIA show, Infinity announced several major additions to Panorama’s core functionality.

Perhaps most critical is Panorama’s new credit risk management capabilities, which highlight a development direction emphasizing integrated credit and market risk. In particular, the latest version of Panorama will allow traders to calculate potential future exposure—a common measure in the credit risk world that expresses how much value could be lost to catastrophic credit events—on an intraday basis. And, through Panorama’s new global credit exposure profiling, it is now possible for traders to view and graph potential future exposure for each counterparty at each term, which enables them to maximize efficient use of global credit lines. Potential future exposure will be calculated using a Monte Carlo simulation engine. On the market risk side, this new simulation engine will enable traders and risk managers to calculate Monte Carlo-based value-at-risk.

Outlook 2.0. Berkeley, Calif.-based Financial Engineering Associates (FEA) has released Outlook 2.0, a desktop VAR calculator that offers innovative VARdelta and component VAR calculation methodologies. The latest version of Outlook will support both variance-covariance VAR as well as Monte Carlo-based VAR, allowing users to compare results. According to Mark Garman, president of FEA, “There has been extended debate within the risk management community of the benefits of each methodology, with the Monte Carlo method being perceived as slow but accurate, and the variance-covariance method being perceived as fast and readily communicated to management. With the release of Outlook 2.0, it now becomes possible to perform direct, side-by-side comparisons of the two methodologies for identical portfolios.”

Axiom-PLUS-CreditPro. New York-based Axiom Software, a low-profile vendor of enterprise risk management products, hopes to enhance its credit risk management functionality by adding an interface to Standard & Poor’s CreditPro, which offers in-depth historical data on more than 6,700 publicly held companies and their credit histories. By offering a connection to CreditPro, Axiom hopes to catch up with vendors such as Algorithmics, which for a long time has enabled users to access CreditPro data, and C-ATS, a notable pioneer in the development of integrated credit and market risk management.

Algorithmics gets euro-ready. Algorithmics announced that its core products, including RiskWatch, Risk++, RiskScript, HistoRisk, RiskWarehouse and RiskMapper, are now euro-compliant. Algorithmics will offer existing clients a consulting package and a standard set of scripts that, in theory, should allow them to implement euro-readiness without undertaking a major overhaul.

RANGER on Java. Inventure released the latest version of RANGER, which embeds the JAVA programming language within the RANGER engine. Through JAVA’s cross-platform capabilities, users will have an easier time building a distributed integration solution based on the RANGER platform. Distributed integration is an alternative to traditional data warehousing solutions that takes advantage of Internet-based technologies, such as dynamic data caching, to integrate data and analytics within a single environment.


Fast, faster, fastest

At this year’s SIA show, Palo Alto, Calif.-based C-ATS fired the latest shot in the ongoing “speed wars,” in which several enterprise risk management software vendors are trying to grab the title of “fastest of them all.” In this latest salvo, C-ATS worked with the Sun Polaris benchmarking center to prove its hotly disputed claim that Monte Carlo simulations are, indeed, appropriate for performing intraday risk reporting on large portfolios.

Monte Carlo simulation, which is conventionally known as an accurate-but-slow way to generate VAR and other statistical distributions, has long been at the center of these speed debates. Some vendors have stated that Monte Carlo is simply not practical for intraday risk management reporting on large portfolios; instead, they recommend variance-covariance VAR methods, portfolio compression techniques and other time-saving devices, all of which may demand some trade-offs in accuracy and so on.

In order to prove its point, C-ATS ran a formal benchmarking study testing the speed of the CARMA enterprise risk management solution running on Sybase System 11 and a Sun Ultra Enterprise 2 workstation. Robert Garzotto, principal of American Management Systems (AMS) and director of the AMS Risk Research Laboratory, reviewed the test content and verified the benchmark performance’s results. He says, “The results of this test confirm C-ATS’s claims of CARMA’s performance. Its computing speed considerably broadens the opportunity for banks and other financial institutions to incorporate enterprise risk measurements into their management processes.”

CARMA’s testing process replicated commonly used applications of the CARMA risk engines, which include one-day and 10-day market risk VAR, current and future credit exposure at both the portfolio and counterparty level, integrated market and credit risk, and capital calculation based on expected losses. “In four minutes, CARMA was able to evaluate current and future exposure to a counterparty with 230 open positions, using 2,500-path Monte Carlo analysis over an eight-year time horizon—evidence of the practicality of near real-time.”

Now, the question is, How will C-ATS’s many competitors respond?

A C-ATS table used to support a claim that Monte Carlo can be used for intraday reporting.
Measurement One-day VAR 10-day VAR One-& 10-day VAR in parallel Current and future potential exposure Market and credit risk
Revaluations per minute 2,036,659 1,775,568 3,551,136 1,854,545 1,743,589
Total revaluations 50,000,000 50,000,000 100,000,000 ~204,000,000 ~204,000,000
*Revaluations/minute = number of transactions x number of time periods x number of Monte Carlo paths/elapsed time

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