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A New Hope: Making Traders and Risk Managers More Innovative and Agile

It is a period of unrest in the financial institution. A brave alliance of customers have challenged the status quo and requested a NEW STRUCTURED PRODUCT. 

Working together, a small team of quants, traders, and risk managers create a prototype and validate the feasibility of their cloud-native approach. They must now face the trials of demonstrating their solution to the SENIOR EXECUTIVES of their company.

The team races to their meeting, custodians of the presentation that can bring INNOVATION and AGILITY to their company.

A short time ago in a nearby city, the front office of a financial institution received queries from a few large clients about a new structured product. These deals had the potential to generate significant PnL for the business, but their systems required more than just a few tweaks to an existing product. In order to effectively manage these deals, the team needs to use new pricing models, analyze and account for new risks, handle a high volume of trades, and be able to generate quotes with intraday data and prompt results.

It’s a race against time. The competition is also aware of this emerging opportunity, and the first company that can effectively trade and manage these new products will likely take most or all of the business. A small team sets out to find an opening that will let them capture this new business opportunity.

The Process Menace

Lurking underneath the surface of this financial institution is a complex trading process that has many more parts than just traders and risk managers—there are structuring teams, quants, information technology, model validation, risk control, and external data sources, to name just a few. While each of these groups is excellent at what they do, the need for data flow, adaptation, and approval processes can create unintended information silos and unnecessary friction, slowing things down. Each group is also already busy with existing deals and customers, leaving little if any resources for new activities.

The small team that is trying to quickly capture the opportunity of this new tradeable product has run into a host of additional challenges. The quant team has a new model, but it needs some performance optimization and the model validation team is already under-resourced. New regulatory reporting has to be implemented. The risk team needs to stress test the payoff and lifecycle evolution aspects of the new product, but risk IT doesn’t have enough spare compute capacity. User interface development is needed to add new values to the risk application. And one or more third-party systems involved in the mix require additional consultants to make some changes.

Is it just easier to surrender and stick to the existing set of tradable products? Or is there a new hope in the marketplace, one that can bring balance to the often conflicting demands for innovation and control?

Advance of the Cloud-Native Platform

The team quickly realizes that they can not get the features they want with a big bang project, introducing everything needed in one big effort. Instead, they need to continuously develop and integrate changes without breaking anything on the production side of the business. Searching through the galaxy of vendors, they find a young and growing company that seems to have been brought into existence specifically to address these challenges.

Working with the chosen platform, they discover a host of capabilities that address their challenges. The platform’s open, cloud-native architecture boosts collaboration between different groups and through different stages of the development process, helping to break down internal silos. Comprehensive data and system integration tools make the startup phase seem like a jump to lightspeed. A transparent and customizable codebase with integrated prototyping, testing, and deployment functions mesh with corporate protocols and reduce internal frictions. Code versioning and change management systems ensure that users know whether they are watching the original production or a revised version. Finally, elastic compute infrastructure makes the platform more powerful than the team can possibly imagine (with appropriate controls and limits).

The team believes that they have found the one platform that will help them capture the new opportunity and build a solid foundation for the future.

Return of Innovation and Agility

For a long time, spreadsheets were believed to be the chosen application at this financial institution, and are widely used to cover for the lack of  flexibility and innovation in third-party systems. Spreadsheets are easy for many to use and some amazing tools have been built with them (and some awful ones). The ubiquity of spreadsheets has clouded the future and the past, with no change management or version controls, no integrated testing or automation, and scalability limitations that hold back larger or more complex analyses.

Using the new chosen platform, the team demonstrates to the firm’s senior executives how they can capture the new business opportunity and build a stronger base for future growth. Innovation and agility are once again a competitive advantage of the financial institution. 

Perhaps the most compelling words in their presentation come from other senior executives who have embraced this platform:

“With Beacon’s flexible and extensible data model, we are able to answer a greater number of increasingly sophisticated questions and deliver value to each business more quickly.” Chief Data Architect, Blackstone

“There was nothing else in the market that could model commodity indices the way we wanted while enabling us to launch the business so quickly.” Founding Partner and Portfolio Manager, Quantix

“By using the Beacon platform we are increasing the speed of our innovation cycle and driving down the cost to explore our data and leverage our analytics.” Chief Technology Officer, PIMCO

If you would like to learn more about the chosen platform and how it can help your business, contact us for a brief demo or consultation.