End of Day and Intraday Risk Data
CRO to Risk Manager – “Where are the risk numbers from 10AM this morning?”
Risk Manager – “Oh… we ran the risk valuation since and that has been overridden. We only have the latest.”
Does this sound familiar?
As we have seen in the past decade, insights that can be derived from data are key to success for companies. In a way we have had a coup d’etat from ‘cash is king’ to ‘data is king’. And if data is king, CTRM software is the castle. Such thinking has led businesses across sectors to mine, manage, analyze their data, and act upon the inferences for greater success. Indeed, data has become the new gold and as many have observed, the new ‘fuel’ running the digital economy.
However, the commodity trading industry has been notoriously slow in adopting technology and cutting-edge concepts. In the world of real-time analytics, the enabling technology is still holding on to 20th century concepts of “End of Day” that gives a macro view of change in exposures, PnL and other risk measures between one and two days.
With greater trading activity and price movements throughout the day, there is much need for a micro snapshot. Not only is the need for a micro snapshot throughout the day, but multiple snapshots throughout the day can also feed into AI/ML based algorithms that can help traders make better and, in some cases, automated decisions. Let the machine take over while humans are resting/sleeping. From a technology point of view, traditional E/CTRM systems have a lot of catching up to do on this, as they always had one End of Day snapshot of data and one ‘rolling’ Intraday set. The ‘Rolling Intraday Snapshot’ keeps getting overridden every time the portfolio is valued for risk measures and the previous snapshot is lost forever.
Many businesses write custom applications to extract such intraday snapshot data to be able to run any meaningful analytics. Such applications take time to build depending upon ease of data extraction from E/CTRM systems, and having to maintain them increase your IT costs (infrastructure, resources).Recent market volatility has exposed the limits of end-of-day reporting as a risk management subject. It is time for E/CTRM systems to move away from the archaic architecture and concept of “End of Day” and move towards ‘Time of Day’ snapshots where the data is never overridden.
For the commodity industry this means being able to transform the ‘End of Day’ risk reporting process into a proactive intra-day risk management program, allowing risk managers to hedge and unwind risks throughout the trading day, as and if necessary.
Commodity Companies with ‘Time of Day’ Visibility
Generate robust market risk strategies that includes data, information systems, risk measures, a hedging program, and organizational structure necessary to track and manage market risk in close to real-time
Have consolidated risk data to ease the regulatory reporting processes
Allow senior management to recognize the change to a dynamic intra-day risk management system as a major improvement in the firm’s operating environment, thus reducing the sensitivity of the organization to risks through flexibility and agility
Mitigate impact of risk, and quickly recover from a realized risk.
And that is a true paradigm shift!
CTRMCloud offers CTRM as a service, allowing for data to be collected, analyzed and reported in near real time from all areas of the business. Contact us to learn more.