In June, Murex won Software Solution of the Year via the FTF News Awards. A key Murex official answers questions about winning that prize and challenges such as the looming Fundamental Review of the Trading Book (FRTB) deadlines.
(Based in Paris, Murex serves financial services firms via solutions for securities trading, treasury markets, risk management, and post-trade operations. A majority of the voters in the FTF News Technology Innovation Awards competition selected Murex’s MX.3 as the Software Solution of the Year for 2107. We got time with Frank Heanue, who is head of the Enterprise Risk Management (ERM) presales team at Murex. Heanue’s background includes regulatory expertise particularly the issues of the Fundamental Review of the Trading Book (FRTB) and the Standardized Approach — Counterparty Credit Risk (SA-CCR). He is also well versed in the many IT requirements of global banks, asset managers and corporates.)
Frank Heanue, head of presales for ERM, Murex
Q: Why did Murex invest in in-memory analytics and specific value-at-risk (VaR) optimizations last year?
A: When it comes to our clients, we are committed to building strong, long-term partnerships.
This allows us to really understand their business needs on a granular level and make sure that Murex’s MX.3 platform helps them to operate at their very best. As a result of this partnership approach, we can quickly identify the core needs of our clients and enhance our technology accordingly.
Over the past few years, we have seen a growing, strong demand for high performance aggregation services and flexible online market risk dashboards leveraging in-memory analytics.
Seeing this demand, we enhanced the market risk aggregation component of the MX.3 platform, Market Risk Aggregator, to enable the sourcing of incrementally additional P&L vectors that are generated by front-office systems, to inject them in the current aggregates, and to re-compute on-the-fly the quantiles taking into account the new data, in order to update the VaR figure.
Moreover, the demand for VaR optimizations has been driven by new regulatory requirements, such as FRTB and the larger volumes of calculations that this entails.
Q: How are firms doing as far as managing their Fundamental Review of the Trading Book (FRTB) activities?
A: When it comes to the management of FRTB, the approach will differ considerably depending on whether your company is taking the IMA [internal models approach] or SA [standard approach] only.
For those embarking on an IMA journey, aligning front office and risk management, sharing processes, data and valuation models is of central importance and revising your IT infrastructure is a must.
For companies taking the SA-only path, the complexity lies more in the front office. In this case, companies may need to adapt systems to produce sensitivities in the new regulatory format, while the SA aggregation is managed by the risk department. The challenge here is reducing total cost of ownership [TCO] while maintaining multiple system components in different departments.
For financial institutions that need to comply with FRTB, despite delays, the deadline will arrive faster than you think and will significantly impact operations, data integration and risk management. It is important to not underestimate the challenges of being prepared.
While some banks have a definite plan and are well along the path to being ready, despite a fluctuating regulatory environment, others are just starting out or are looking at stop-gap solutions, putting in place temporary SA solutions whilst in parallel looking at what IMA might bring them. Many are now reaching out to technology vendors to see which software provider can meet their needs, and a few have reached testing and implementation milestones.
Q: Why did Murex decide to resolve the FRTB problem from a software perspective?
A: Murex’s MX.3 platform provides enterprise-wide coverage, from front office through to risk management and post-trade.
When FRTB, considered by many to be game-changing, came into focus, our single platform approach put us in a strong position to meet the new regulatory requirements, naturally closing the gap between front office and risk, creating consistency in data modelling and calculation across the business.
Moreover, MX.3’s strong P&L variance functionality is a key enabler for the internal method (IM) under FRTB. Having these core foundations already in place, it made perfect sense to us to develop a market-leading FRTB offer to help our clients accelerate timeframes and reduce costs of this regulatory undertaking.
Q: Much has been made about disruptive technologies. Which emerging technologies excite you and how will they impact the offerings from Murex?
A: Today, we are seeing the demystifying of disruptive technologies in the capital markets, with software vendors looking at their possible applications and advising clients on how to harness these innovations in a way that makes sense for their business.
At Murex, trends we are currently exploring include how AI [artificial intelligence] and cloud are shaping the future of finance.
Although the cloud has been around for several years, it has only recently taken off in the capital markets, with more and more clients requesting information on this topic weekly.
Murex has invested significant time and resources, working with leading cloud providers in the space to develop an offer that helps clients increase flexibility in their IT infrastructure and reduce the cost of their hardware footprint.
Building on our lift and shift model, which allows clients to leverage the full power of the MX.3 platform on the cloud, we are also expanding our platform as a service (PaaS) capabilities, with emphasis on database management.
Additionally, we are harnessing these cloud benefits for our software as a service (SaaS) offering and future functional innovations.
We believe that AI and machine learning will help reduce the calculation burden in risk management. When we refer to AI, we are describing a program that can sense, reason, act and adapt.
Machine learning describes algorithms whose performance improve as they are exposed to more data over time. Murex is investigating the use of neural networks for the pricing of complex derivatives in order to significantly improve the performance for large scale risk calculations (such as for Value at Risk or PFE/CVA calculations).
Using machine learning for pricing in test conditions, we see enormous potential to improve performance.
Q: What other trends may be more meaningful for Murex?
A: A trend that Murex has followed closely in recent years is the rise of the DevOps and the Scaled Agile approaches.
Leveraging these approaches, we have been enhancing software delivery, with the end goal of creating a steady stream of value for our clients, from initial requests, to development, packaging release and integration in the client environment.
This is an ambitious transformation and focuses on the deployment of “agility at scale” within the product factory and the deployment of DevOps for the delivery of customer-specific configuration within our client services division. It also required an internal DevOps transformation for in-house tooling and infrastructure.
While the positive impact of a scaled-agile approach has been seen in other industries, capital markets are only beginning to reap the benefits of an agile approach, including the ability to better manage shifting priorities, improve predictability and increase delivery speed.
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