FiNETIK – Asia and Latin America – Market News Network

Credit and market risk are linked, and should be managed consistently, preferably in one system, according to a study of counterparty credit risk released jointly by SunGard Data Systems and the Professional Risk Managers International Association.

The report, based on a global survey of 436 risk professionals, was the topic of a June 23 presentation at SunGard’s New York City Day, a collection of events held prior to the opening of the Securities Industry and Financial Markets Association’s Technology Management Conference and Exhibit at the New York Hilton.

In a workshop on “What Happens Next in Counterparty Credit Risk,” Nawal Roy, head of the New York chapter of Professional Risk Managers International Association (PRIMA) and managing partner at Shobhit Capital Group, said that the survey of risk professionals from sell-side firms, buy-side firms, consulting firms and government asked a series of questions about the characteristics of a credit risk monitoring system.  In their responses, 67 percent of those surveyed said it is very important to have a combined market and credit risk system, while 61 percent said that issuer exposures should be monitored “under a hybrid framework.”

“Credit and market risk are linked, and should be managed consistently, preferably in one system,” said Marcus Cree, director for the Americas of SunGard’s Adaptiv business unit. However, he added, combining them is complicated, and “how this works in practice is an open question.”

Another finding from the survey, he said, is that in counterparty credit risk management, “perceived limitations are getting in the way of desired risk policy.” Systems should reflect exposure accurately, Cree said, and need to account for the whole portfolio effect and include risk mitigation such as netting. “Accuracy is important,” Cree said. “Simple proxy measures are not up to the job.”

At the same time, he said, the survey showed that there is no “one size fits all” approach to counterparty credit risk management: “Fragmented limit structures are a reality, even if unified global limits are an aspiration.”

SunGard’s offering in the space, SunGard Adaptiv Credit Risk, is an enterprise scale transaction processing and portfolio management engine that allows users to perform credit inquiries in real time, around the globe. The system departs from the traditional “up front license cost plus annual maintenance” model that is commonly associated with risk systems, and is instead priced on a per-transaction basis.

Source: Securitiesindustry.com, 24.06.2009 by Carol E. Curtis