Platform modernization for risk management

Market risk, or the risk associated with movements in stocks, bonds, and other assets, has increased as a result of ongoing market volatility, which has, in turn, boosted the demand for cutting-edge, risk-optimized technology among trading and investment firms. 

Malcolm Warne, Head of Product for Nasdaq Risk Platform, is saying that stress testing becomes even more crucial when reacting to volatility in real-time. “If you can stress-test different components of your portfolio, such as your exposure to the banking industry, cryptocurrency companies, or energy firms, you can isolate where your risk is concentrated and where you’re most vulnerable so you can take action now, rather than when it’s too late,” says the author.

Following a 33% loss last year as equities investors watched the Federal Reserve’s course of interest-rate hikes and assessed the likelihood of a potential recession, the Nasdaq Composite Index has increased by around 15% so far in 2023. The benchmark 10-year US Treasury yield in fixed income, which is usually a low-volatility market, increased from about 1.25% in mid-2021 to nearly 4% in October 2022, and it has subsequently fallen down to 3.25%.

The sporadic volatility and fast-moving markets highlight the value of risk management platforms that assist market players in nimbly and promptly managing risk. Legacy systems need to be improved for the job.   

trading firm

“The old model was, a customer buys a big box that caters to its projected volume, there’s a long project for software to be delivered and integrated, and then maybe a year later you have a working risk system,” Warne explained. The new approach with providers like us is installing in the cloud, operating the service internally, and offering access to market data providers, instrument data suppliers, and execution venues. The time it used to take to develop software is now drastically reduced, and connectivity is already in place. This helps us to fast onboard new clients and quickly roll out new capabilities to them once they are on board.

The 24/7 multi-asset coverage offered by Nasdaq’s SaaS-deployed, cloud-native Risk Platform is available to prime brokers, investment banks, broker-dealers, clearing brokers, commodity brokers, and energy trading firms. The platform, housed on Amazon Web Services, can aid in the digital transformation of risk management platforms and help organizations effectively assess, comprehend, and preventatively manage overall risk exposure.

Warne emphasized the value of the cloud, which offers elastic computing and real-time performance delivery at scale, such as with Nasdaq’s recently introduced streaming options analytics tool. Additionally, the exchange operator uses the same technology throughout its line of products.   

As with administering its own markets, Nasdaq “applies the same rigor and high standards to managing the Nasdaq Risk Platform,” according to Warne.