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A Guide To Credit Software

U.K.-based TCA Consulting rates today's motley collection of credit risk management offerings.

By Karen Spinner

London-based TCA, an IT consulting firm, has attempted to bring some order to what, at first glance, appears to be primordial chaos—the recent spate of new, integrated credit risk management systems flooding the market.

In a recently released study, TCA has managed to dig up several trading, risk and operations management vendors that are heading rapidly down this development trajectory. The study provides a helpful starting point for IT and risk managers who wish to compare a wide range of systems that purport to deliver integrated credit and market risk management.

TCA, however, takes this a step further. The firm actually rates the relative efficacy of these vendors' functionality according to two major categories—limit and exposure management, and the risk engine. Limit and exposure management refers to tracking credit limits and exposures according to user- and vendor-defined methodologies. The risk engine component refers to modeling capabilities such as credit value-at-risk and potential future losses that require multistep Monte Carlo analysis and the intricate mapping of default and recovery rate data, as well as the volatility of and correlations between default and recovery rates.

In many cases, TCA encourages users who want the best of both worlds to use two systems, since it believes that no single vendor provides leading-edge functionality in both categories. According to TCA's analysts, the combination that would deliver the best functionality in exposure and limit management and risk engine capability would be Midas Kapiti for limit and exposure management, and C-ATS's CARMA for the risk engine. For users who do not want to deal with systems integration, TCA believes Infinity's increasingly successful Panorama offers solid, although not stunning, functionality in both categories.

For more information, see www.consulting.tca.co.uk.

Source: TCA Consulting
Vendor (System) TCA Ratings (1=nonexistent, 10=best) Pros Cons
Limit and Exposure Management Risk Engine
Algorithmics (enterprise market and credit risk management) 2 10
  • Impressive calculation and modeling ability for potential future exposures
  • Rapid implementation
  • Movement toward credit risk functionality
  • Unproven in the credit arena
  • May not have yet developed enough sophistication to manage the data collection and organization problems of large institutions
  • Axiom (enterprise market and credit risk management) 4 9
  • Strong abilities in data pricing and modeling
  • Modules (such as ComplEye, a compliance monitoring tool) deal with operational issues that relate closely to credit risk management
  • The firm's emphasis on modeling in the past has overshadowed its limit and exposure management capabilities
  • C-ATS (enterprise market and credit risk management) 2 10
  • Superior modeling
  • Fast, efficient Monte Carlo simulation
  • It is the only company to model the potential effects of counterparty default to AAA ratings standards
  • Weak limits and exposure management
  • Difficult installations
  • May be “analytic overkill” for some institutions
  • CMG (enterprise credit limit and exposure management) 8 3
  • Strong limits and exposure management, especially tracking and handling excesses
  • Flexible alternatives for exposure calculation
  • User-friendly graphical user interface
  • No modeling
  • GE Information Services (enterprise credit exposure and limit management service) 7 2
  • Robust exposure and limit management
  • Provides a business model that delivers an alternative to aggregated limits
  • Zero administration system (the client's database is stored and administered by GEIS)
  • 25-year history in this market
  • GEIS owns software
  • Open-ended pricing structure
  • Infinity—Panorama (enterprise credit and market risk management) 6 5
  • Broad range of functionality for market and credit risk
  • Flexible portfolio management design that allows the easy manipulation of data
  • Monte Carlo simulator is used to estimate potential future exposures
  • Solid risk engine, but not best in class
  • Lombard Risk Systems (straight-through processing trading system with superior work flow management; limited risk management) 2 2
  • Superior, unique work flow capabilities
  • Oberon is not a credit risk product and the modeling and simulation capabilities of Oberisk are as yet unproven
  • Management Data (enterprise credit exposure and limit management) 9 3
  • Comprehensive credit and exposure management
  • Tracks the life of limits
  • Superior organization of confusing amounts of data
  • Upcoming partnership with Algorithmics
  • Lacks modeling capabilities (will be addressed through partnership with Algorithmics)
  • Barra Redpoint (enterprise risk management, with some credit functionality) 5 7
  • Superior handling of policies and procedures
  • Weak exposure and limit calculations
  • Midas Kapiti (enterprise credit limit and exposure management) 10 2
  • Business-driven exposure and limit-management solution that accurately reflects bank operating procedures
  • Relatively complete solution for limit management
  • Lacks modeling capabilities
  • New Products, Releases and Developments

    Just when it seemed there were more risk management systems and consultants than even today's volatile market could support, another company has expanded its operations in search of still-greater market share. London-based Elmbridge, a relative newcomer to the enterprise risk management scene, is increasing its head count by 50 percent to expand its consulting and product development capabilities. Known for its XS Monitor, a tactical solution to the EU Capital Adequacy directive used by more than 40 European financial institutions, and, more recently, the Enterprise RiskServer development tool set, Elmbridge is poised to pose a serious threat to such market leaders as SunGard's Infinity and Algorithmics.

    Another entrant into the enterprise risk management marketplace is Mamdouh Barakat Risk Management's Universal MBRM System, billed as a multitiered, client-server portfolio and risk management system. The Universal MBRM System packages the functionality of the entire MBRM product line, including the FSS Universal Trading System, the MBRM Exchange-Traded Option System, the MBRM Multi-Asset Monte Carlo Analyzer and the Universal Swap add-in. One of the primary benefits of the Universal MBRM system is that it allows all of these applications to share underlying volatility and correlation, presumably leading to more efficient processing and consistent valuations and analyses. The system will also enable calculations to be performed on either the client or server machines, for added efficiency.

    Greenwich, Conn.-based NetRisk, founded last year by Gene Shanks, the former president of Bankers Trust, is enhancing its risk management offerings through a strategic acquisition. The company has purchased CSK Software's Risk-in-Time division, which specializes in event-driven, real-time credit, market and liquidity risk management reporting. With the addition of Risk-in-Time, NetRisk will be able to supplement its custom software and advisory services with a packaged solution. It will need all the help it can get to compete as a newcomer in the crowded risk management market.

    West Port, Conn.-based TriplePoint Technology has augmented its risk management capabilities through the acquisition of Power Savant, a power risk management system, from DNL Risk Management Associates. Power Savant provides risk management monitoring, analysis and control functions to both the physical and financial sides of the electricity and natural gas trading markets. This acquisition will jump-start TriplePoint's efforts to gain market share in the fast-growing electricity trading marketplace and to perform against competitors such as ZAI*NET and TIBCO's energy trading systems division.

    Inventure has released FENICS 8.2, an updated version of the industry standard foreign exchange options-pricing system, which includes expanded coverage for emerging-market transactions and the euro. This release is remarkable because it is bundled with third-party plug-ins from Financial Engineering Associates, Tech Hackers and NumeriX. These models will be available on a 30-day trial basis. Inventure's FENICS Software division has also partnered with Spheresoft, a software analysis, development and design consultancy, to accelerate FENICS's ongoing development schedule.

    Buyer Vendor Products Comments
    Rabobank International, New York/td> Tech Hackers Consulting services New York-based Rabobank International has partnered with Tech Hackers to build a comprehensive front-, middle- and back-office system to handle its Stable Value Product (SVP) business. The SVP provides book-value accounting for fixed-income securities in a 401(k) stable fund.
    DGZ Bank Financial Software Systems (FSS) Spectrum DGZ purchased FSS's complete treasury system to manage its treasury activities, including hedging, portfolio management and back-office functions.
    Corfi Infinity Panorama, Devon Rome-based Corfi chose Panorama to provide comprehensive market and credit risk management, as well as trading limits, for its interest rate, securities, derivatives and bond trading operations. Corfi will use Devon for back-office functionality.
    Sanwa Securities Infinity Infinity 7 Tokyo-based Sanwa Securities selected Infinity 7 to provide front-office functionality, trading limits and credit limits for its interest rate derivatives business. Sanwa recently went live on the Infinity 7 platform.
    Julius Baer Group Infinity Panorama The Julius Baer Group, a leading Swiss private bank, will use Panorama to provide enterprise risk management for its foreign exchange, money market, interest rate and equity products.
    Mitsubishi Trust and Banking Corp. Infinity Infinity Derivatives, Infinity Forex and Panorama Mitsubishi Trust and Banking Corp.'s (MTBC) Tokyo office chose Infinity Derivatives and Infinity Forex to provide front- and middle-office coverage. MTBC's London office uses Panorama to provide comprehensive market risk management. MTBC is running all of these systems in a live environment.