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August 1st 2009

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Algo enhances real-time risk offering

Toronto-based financial risk management software provider Algorithmics will launch a new version of its Counterparty Credit Risk product with enhancements in real-time risk management in October this year.

The upgraded product, the version number of which is yet to be determined, will offer an expanded real-time risk management piece covering a broader range of asset classes, including rates, fixed income, energy and structured products, says Neil Bartlett, CTO of Algorithmics. For the first time, the vendor has entered the real-time credit value adjustment (CVA) area, which uses a loss-based measurement, he explains.

The idea is now to tune each individual trade with a loss-based adjustment, says Bartlett. Firms are moving towards the concept of pricing credit risk when they are on-boarding a deal, so when they are trading they have captured the cost of risk of the product, resulting in more accurate pricing, while at the same time covering the risk, he explains.

Algorithmics officials are currently undertaking performance testing of the next version of the platform, while some development work is ongoing on the limit management side, says Bartlett. An unnamed Canadian bank, which is an existing Algorithmic client, is currently beta testing the platform and plans to use it in conjunction with its energy trading platform.

Although real-time risk management is still only possible in theory, the vendor has seen a large increase in interest in this area since the end of February. The firms looking to adopt this type of risk calculation are mostly large and mid-tier banks, Bartlett says. "They want to handle exposure to a counterparty and they want to understand, during the course of the day, where they stand with respect to their overall counterparty exposure," he adds. "They want to get the best possible exposure number as quickly as possible."

Algorithmics' real-time risk technology performs standard middle-office risk management techniques at the point where the trade is brought into the organisation, providing pre-deal credit checks -traditionally middle-office content - on the trading desk, says Bartlett.

By not having to wait until the end of the day to perform risk management, front-office systems become more operationally efficient. It also allows firms to better measure real-time e-commerce transactions, enabling those connected to ECNs doing automated trading to pick deals more rapidly and with better quality, he says. "You need a high-quality, high-speed check, so you can pick better deals consistently with less risk," he says. ><

Cecilia Bergamaschi