prize Race for the...again, Murex has topped the overall rankings, with ﬁrst places in seven categories, including cross-asset trading and front- to back-oﬃce systems, second place

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70 Technology December 2006

With jockeying for position across almost all categories, Risk ’s 2006 technology rankings reveal how keenly the vendors of analytics, trading and risk management systems are fighting for market share. Once again, Murex has topped the overall rankings, with first places in seven categories, including cross-asset trading and front- to back-office systems, second place in 11 categories and five third places. However, competition is fierce among the top firms, with Algorithmics close behind with six first places and SunGard in third place overall with four top spots.

Maroun Edde, chief executive of Paris-based Murex, says the challenges faced by vendors in meeting the requirements of

today’s financial institutions have become more acute in the past year. For one thing, there is the technology infrastruc-ture on which the application is built, its flexibility, security, ability to scale up and total cost of ownership.

“Clients are expecting considerably more in these areas than they used to, and tests to validate a system’s architec-ture are more detailed and professional than before,” says Edde. The investment required to develop and maintain an architecture that can exploit advances in technology is considerable, and the gap is widening between those companies that have made this commitment, and so remain at the forefront of the market, and those that have not and are falling behind. “As a vendor, either you have made the investment and you are there,

or you are not,” says Edde. Business content is another key issue –

it is becoming increasingly important to be at the cutting edge across all asset classes and functions. In addition, vendors are required to support clients in their ever-more aggressive time-to-market ambitions. As a result of these demands, and the large investments on the part of both the bank and the vendor to meet them, financial institutions are insisting on deeper and more committed relation-ships with system providers.

“Clients are no longer content to just buy a system from a vendor, implement it and have a loose relationship with the vendor,” says Edde. “They want us to be much closer to their organisation. On the one hand, when we roll out an implemen-tation, they want us to share more risk; while on the other, we participate more in the development of their organisation.”

The vendor is increasingly being invited to participate in the strategic thinking by sharing analysis of long-term industry trends, says Edde. In turn, the client reveals its ambitions at an earlier stage, enabling both parties to discuss and plan

Race for the

prize

Murex has once again topped Risk’s technology rankings, winning seven first places in this year’s poll. But competition is ferocious, with Algorithmics and SunGard close behind in second and third place. By Clive Davidson, with research by Xiao Long Chen

“Every year systems change by a significant proportion, approximately a quarter or so, so every four or five years you are having to develop the equivalent of a new system” Juerg Hunziker, SunGard

tech rankings.indd 70 30/11/06 4:42:23 pm

OVERALL RESULTSTop technology vendors Rank Vendor 1st places 2nd places 3rd places1 Murex 7 11 52 Algorithmics 6 4 3 SunGard 4 9 94 Savvysoft 3 1 5 Misys 2 1 16 Calypso 2 47 Imagine 2 18 Fermat 1 29= Ci3 1 19= Sophis 1 111= Reuters 1 11= SuperDerivatives 1 13 Numerix 2 314= Openlink 1 114= SAS 1 114= Wall Street Systems 1 1

risk.net 71 risk.net 71

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the development and implementation of new business proposals and the technology that will support them.

Other vendors developing increasingly deep business partner-ships with their clients include SunGard, Calypso, Misys, Sophis and Wall Street Systems – all of which appear in the Risk rankings. The biggest gains in this year’s survey have been made by California-based Calypso and Pennsylvania-based SunGard. Calypso has moved from sixteenth to sixth place in the overall results, with wins in credit trading and credit front- to back-office systems, and top five finishes in nine other categories. Calypso’s processing capabilities and scalable architecture have proved particularly popular in the burgeoning credit derivatives market, where the company counts Citigroup, Bear Stearns and Wachovia as some of its major clients.

SunGard, meanwhile, has moved from eighth to third place in the overall rankings, with four top spots (including credit risk for trading and banking books and limit checking, credit analytics and structured products trading systems), nine second places and nine third-place wins. The company at last appears to be benefiting from its efforts to consolidate its diverse range of mostly acquired products. The Front Arena trading and risk system, which just three years ago was still marketed more or less autonomously, is now firmly within the SunGard fold, while the company’s Panorama market risk, Credient credit risk, Reech and Monis analytics and other risk applications have been pulled together and rebranded under the Adaptiv label.

Juerg Hunziker, president of SunGard’s Adaptiv business unit, says the challenge of keeping up with the innovation and business development in the industry is formidable. “Every year systems change by a significant proportion, approximately a quarter or so, so every four or five years you are having to develop the equivalent of a new system. The market is so dynamic that it is becoming increasingly important for the vendors and clients to be very clear on the scope of technology projects, and just what the vendor is expected to deliver,” he says.

In terms of pure technology, the answer to the challenges of increasing complexity of instruments, massive growth in volumes, pressure for ever shorter time to market with instru-ments, and faster pricing and risk calculations is grid computing – large networks of low-cost processors operating in parallel. Many vendors of trading and risk systems, including Algorith-mics, Misys and Sophis, have re-engineered their software to run on grids. “This involves a lot of work as the applications need to be open and modular enough to allow slicing and dicing of libraries and algorithms – which is greatly eased if they are based on service-orientated architecture,” says Jean-Baptiste Gaud-emet, a senior consultant with Paris-based Sophis. “The next step is to partner with grid platform suppliers like New York-based DataSynapse that provide large networks of low-cost processors to perform the calculations on.

“For all asset classes, the requirement for increased power is a major challenge,” continues Gaudemet. “More and more clients are showing an interest in grid computing, be it on Sophis proprietary calculation servers or on DataSynapse’s grid.” Nomura International recently went live with Sophis’s Risque system on DataSynapse’s GridServer.

Although it surrendered the top spot in credit risk for trading and banking books and limit checking to SunGard, Toronto-based Algorithmics remains the dominant risk management system supplier in the rankings. With six first places, including market risk systems, regulatory and economic capital calcula-

tion, operational risk assessment and key risk indicators, and collateral management, the company is a market leader across all risk categories.

Algorithmics started out on the sell side, focusing in particular on first-tier banks. Now, the fastest-growing area of business for the company is on the buy side. “Asset managers and hedge funds are adopting more complex strategies involving multiple asset classes and more structured products, so the quality

Survey respondents by type of institution

Investment

bank/brokerage

Universal bank/diversified financial organistion

Asset management

Insurance

Others

Survey respondents by location

Latin America

Others

Canada/US

South Africa

Europe

Asia/Pacific

Survey respondents by location (%)

Survey respondents by type of institution (%)

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of their risk and decision support systems is becoming more important,” says Michael Zerbs, Algorithmics’ president and chief operating officer.

The bigger of the buy-side firms prefer to have their own system installed in-house, but the medium-sized institutions are looking more at what Algorithmics calls its managed services solution. Like an application services provision (ASP), the software is hosted by the vendor and is made available to customers online. However, clients have a more individu-ally tailored version of the system at their disposal than with a pure ASP, says Zerbs. “We pre-configure a specific set of analysis and views of risk and return to each client,” he says. So far, broker-

dealers such as Toronto-based TD Securities and London-based Marex Financial have been the first to adopt Algorithmics software in this way, but Zerbs expects there to be good take-up for this offering among buy-side firms.

Many banks use Algorithmics’ software to help them comply with Basel II, and the new Accord continues to consume senior management attention as key deadlines of major Basel II projects approach. Among top-tier banks, the initial focus on Pillar I and its minimum capital adequacy is quickly evolving into a focus on Pillar II, use test requirements and the supervisory review, says Zerbs. “Banks are looking at what they need for better stress testing. Pillar I doesn’t

account for credit concentrations, for example. Once they start looking at these, and implementing economic capital models, the problem becomes how you compare these with the regulatory model, which is a key Pillar II issue,” he says.

Paris-based Fermat, which now has more than 45 banks using its Basel II credit system, in addition to more than 50 for its original Basel I market and credit risk system, pipped Algorithmics to the post in the rankings of Basel II systems vendors this year. Of the company’s new Basel II customers, more than 20 are in production, including Allied Irish Banks, Fortis and Société Générale.

The operational risk management requirements of Basel II have also forced many banks to look to third-party systems vendors for help. Making a strong showing in the operational risk categories in the rankings is Dublin-based Ci3. The company now has a partnership with SunGard, wherein SunGard labels Sword’s application as BancWare OpRisk, giving Ci3 a channel into the banking market, while Ci3 offers SunGard’s capital calculation engine BancWare Capital Manager to those clients that need this functionality. Ci3 is now concentrating on asset management and

How the survey was conductedRisk polled thousands of banks, hedge funds, pension firms, insurance companies and corporate treasuries

for this year’s technology rankings, and received 1,160 valid responses. Respondents were asked to vote for

the technology vendors that provide the best product offering across a number of categories, including

market risk, credit risk, trading systems, analytics and front- to back-office systems.

Participants were asked to base their votes on functionality, usability, performance, return on invest-

ment and reliability. Nominated technology companies were awarded three points for a first-choice

vote, two for a second-choice vote and one point for a third-choice vote. Only technology end-users

were allowed to vote. Risk conducted a comprehensive due diligence process, and disqualified all votes

deemed to be invalid.

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Juerg Hunziker, SunGard


insurance, where in the latter market it has recently won major contracts with Swiss Re and Zurich Financial Services.

Richard Pike, product manager for Sword at Ci3, says the diff erent sectors approach operational risk management with diff erent priorities. “Banks are loss-focused – primarily concerned with recording, understanding and mitigating their losses. Operational risk is the major risk for asset managers, so management controls are their priority. Meanwhile, insurance companies’ business is risk, so they want to do forward-looking risk assessments,” he says.

Overall, technology for operational risk management has matured to the point that there is now market recognition that fully fl edged off -the-shelf products are available from the likes of Ci3, Algorithmics, Methodware and SAS, and that these can off er benefi ts over internal projects. Peyman Mestchian, head of the risk intelligence practice for Europe, Africa and the Middle East for SAS, says many fi nancial institutions now see operational risk as more than just a regulatory requirement, and are taking a more strategic approach through enterprise-wide projects. Data management issues are coming to the fore, giving vendors that are strong in this area a competitive edge, says Mestchian.

In the analytics categories, New York-based Savvysoft has performed strongly, topping the cross-asset, rates and structured product analytics categories, and fi nishing in the top fi ve in credit, commodities and foreign exchange. Th e company also ranked fourth in market risk, giving it an overall position of fourth in the Risk rankings. Rich Tanenbaum, Savvysoft president, says that while excellence in modelling is a critical factor for a vendor, the quality of support off ered by a company is also crucial. Vendors need to develop a trading fl oor mentality to providing support – responding to queries and requests quickly and comprehensively, he says.

Savvysoft has been getting more requests for help with meeting accounting standards, such as Financial Accounting Standard 133 and International Accounting Standard 39. Although these rules have been in place for a few years, auditors are becoming more and more insistent on hedge eff ectiveness testing, says Tanenbaum. To reduce the eff ort of keeping track of derivatives that have been executed as hedges, organisations want to automate the process – hence the need for tools such as Savvysoft’s Stars portfolio and risk management system. Savvysoft now has six users of Stars, and plans to off er the system as an ASP – a delivery mechanism that is becoming common despite initial resistance. “People begrudgingly accept ASP now,” says Tanenbaum. Because ASP is a pay-per-use model, it has lower upfront costs. Th ere are also lower maintenance costs as the vendor hosts the system. “It is hard to turn away from the economics of it,” he adds. However, users sacrifi ce a degree of control, and often have less ability to customise the system. It is also not unusual for ASP off erings to be merely cut-down versions of installed systems, with less functionality and power. Savvysoft intends for the Stars ASP to off er the same capabilities as its installed version.

New York-based Imagine, which tops the rankings in equities trading and analytics, off ers its customers an identical system, whether ASP or installed. As a result, its hedge fund and regional bank clients have access to the same capabilities as its big installed users such as Deutsche Bank and Dresdner Kleinwort. ASP

Savvysoft has been getting more requests for help with meeting accounting standards, such as Financial Accounting Standard 133 and International Accounting Standard 39. Although these rules have been in place for a few years, auditors are becoming more and more insistent on hedge eff ectiveness testing, says Tanenbaum. To reduce the eff ort of keeping track of derivatives that have been executed as hedges, organisations want to automate the process – hence the need for tools such as Savvysoft’s Stars portfolio and risk management system. Savvysoft now has six users of Stars,

resistance. “People begrudgingly accept ASP now,” says Tanenbaum. Because ASP is a pay-per-use model, it has

often have less ability to customise the system. It is also not unusual for ASP off erings to be merely cut-down versions of installed systems, with less functionality and power. Savvysoft intends for the Stars ASP to off er the same capabilities as its

New York-based Imagine, which tops the rankings in equities trading and analytics, off ers its customers

result, its hedge fund and regional bank clients have access to the same capabilities as its big installed users such as Deutsche Bank and Dresdner Kleinwort. ASP

users not only get the functionality – they get a package of data and services that includes a securities master fi le, volatility surfaces, projected dividends and other essential data, as well as a service that maintains and updates the data, says Steven Harrison, president and chief operating offi cer of Imagine.

Th e company can quickly add new pricing models or other functions to the system and make them immediately available to its ASP users. However, Imagine tries to provide tools for clients to adapt the system to their own needs where possible. Harrison says one of the strongest features of the system is a scenario control language, which enables users to create their own custom calculations as a column in a portfolio spreadsheet. “So, as their strategies change or the market moves in diff erent ways and they need to take a diff erent perspective, they can create their own stress test or other analytics right in the portfolio,” he says.

Some institutions adopt an ASP as a cheap and eff ective way to test a system. For instance, a major investment bank fi rst licensed Misys’ Summit front- to back-offi ce system for 15 users in ASP mode. When this proved successful, it increased its licence list to 70 users. Now it is in the process of installing the system in-house, says Edward Ho, chief executive of Misys’ treasury and capital markets division.

For many vendors, developing new markets such as China and increasing business with the buy side are major focuses. Chinese banks are installing state-of-the-art technology as they look to compete against an infl ux of foreign banks into the country. For instance, fi ve of China’s leading banks, including Industrial and Commercial Bank of China, Bank of China and China Construction Bank, have implemented Misys’ Summit system. Th e success or otherwise of vendors in markets such as China, India, South America and eastern Europe is one of the major factors that could have an impact on Risk ’s technology rankings in 2007. ●

“Clients are no longer content to just buy a system from a vendor, implement it and have a loose relationship with the vendor” Maroun Edde, Murex

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MARKET RISK

Market risk Number of companies cited: 39

2006 2005 Company %

1 1 Algorithmics 13.8

2 7 SunGard 13.7

3 3 Murex 12.0

4 2 Savvysoft 8.1

5 6 Misys 6.2

6 5 Imagine 5.4

7= Calypso 4.5

7= Sophis 4.5

9 9 RiskMetrics 3.8

10 8 Reuters 3.4

CREDIT RISK

Trading and banking Number of companies cited: 27

2006 2005 Company %

1 5 SunGard 14.5


3 3 Moody’s KMV 12.5

4 Misys 9.9

5 SAS 6.5

Limit checking Number of companies cited: 22

2006 2005 Company %

1 3 SunGard 14.3


3 2 Murex 13.7

4 Calypso 11.4

5 5 Misys 5.7

CAPITAL CALCULATION

Regulatory Number of companies cited: 24

2006 2005 Company %

1 na Algorithmics 16.3

2 SunGard 14.7

3 Fermat 11.2

4 SAS 7.5

5 Misys 6.0

Economic Number of companies cited: 21

2006 2005 Company %


2 SunGard 13.2

3 Fermat 9.3

4 Moody’s KMV 7.8

5 SAS 6.4

OPERATIONAL RISK

Assessment and key risk indicators Number of companies cited: 19

2006 2005 Company %


2 SunGard 14.2

3 Ci3 10.1

4 SAS 9.8

5 Misys 9.5

Internal loss database Number of companies cited: 16

2006 2005 Company %

1 1 Ci3 14.9


3 3 SAS 14.5

4 SunGard 13.3

5 Misys 8.7

Capital calculation Number of companies cited: 15

2006 2005 Company %


2 2 SAS 15.9

3 SunGard 14.3

4 4 Ci3 9.8

5 Misys 7.8

Cross-asset Number of companies cited: 18

2006 2005 Company %

1 1 Murex 18.4

2 3 SunGard 17.6

3 Calypso 16.5

4 2 Misys 9.8

5 Sophis 5.5

Credit Number of companies cited: 17

2006 2005 Company %

1 4 Calypso 19.2

2 3 Murex 17.5

3 1 SunGard 16.5

4 2 Misys 10.2

5 Sophis 4.6

TRADING SYSTEMS

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Rates Number of companies cited: 24

2006 2005 Company %

1 1 Misys 19.3

2 4 Murex 18.7

3 Calypso 17.8

4 5 SunGard 14.0

5 2 Reuters 6.2

FX Number of companies cited: 25

2006 2005 Company %

1 1= Reuters 18.5

2 1= Murex 15.6

3 3 Wall Street Systems 11.7

4 4 SunGard 10.4

5 Misys 6.7

Equity Number of companies cited: 20

2006 2005 Company %

1 1 Imagine 18.9

2 2 Murex 17.8

3 4= Sophis 15.5

4 3 Sungard 10.4

5 Misys 10.0

Commodities Number of companies cited: 17

2006 2005 Company %

1 1 Murex 19.3

2 2= SunGard 16.1

3 2= OpenLink 14.2

4 Sophis 8.0

5 2= Reuters 5.6

Structured products Number of companies cited: 18

2006 2005 Company %

1 5 SunGard 21.2

2 2 Murex 20.9

3 1 Misys 16.3

4 Calypso 11.6

5 4 Sophis 7.6


2006 2005 Company %

1 1 Savvysoft 19.3

2 Numerix 17.4

3 2 Murex 13.2

4 5 SunGard 12.4

5 3 Imagine 7.9


2006 2005 Company %

1 5 SunGard 18.6

2 2 Murex 16.2

3 Numerix 12.1

4 1 Savvysoft 10.0

5 Calypso 8.5


2006 2005 Company %

1 1 Savvysoft 16.2

2 5 Numerix 16.1

3 2 Murex 11.9

4 SunGard 11.7

5 Calypso 8.0

Forex Number of companies cited: 20

2006 2005 Company %

1 1 SuperDerivatives 14.8

2 2 Murex 12.7

3 Numerix 12.0

4 SunGard 9.3

5 3 Savvysoft 8.2

Equity Number of companies cited: 17

2006 2005 Company %

1 1 Imagine 14.8

2 SunGard 12.1

3 Numerix 10.6

4 3= Sophis 7.7

5 2 Bloomberg 6.1


2006 2005 Company %

1 1 Murex 15.3

2 3 Savvysoft 15.1

3 SunGard 10.6

4 2 SuperDerivatives 9.5

5 OpenLink 9.0

TRADING ANALYTICS

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2006 2005 Company %

1 1 Savvysoft 14.4

2 2 Murex 14.3

3 SunGard 13.3

4 Numerix 13.0

5 3 Misys 9.1


2006 2005 Company %

1 2 Murex 19.7

2 SunGard 17.8

3 3 Calypso 15.5

4 1 Misys 14.1

5 Sophis 9.4


2006 2005 Company %

1 3= Calypso 19.6

2 2 Murex 17.8

3 3= SunGard 15.9

4 1 Misys 14.3

5 5 Sophis 5.2


2006 2005 Company %

1 1 Murex 19.9

2 2 Misys 17.9

3 3 SunGard 16.2

4 5 Reuters 9.3

5 Calypso 7.8

Forex Number of companies cited: 19

2006 2005 Company %

1 1 Murex 20.2

2 4 Wall Street Systems 17.8

3 3 Calypso 12.7

4 5 Reuters 11.2

5 Misys 7.6

Equity 17 companies cited

2006 2005 Company %

1 3 Sophis 19.5

2 1 Murex 18.2

3 2 Imagine 17.3

4 5 SunGard 8.0

5 4 Reuters 5.6


2006 2005 Company %

1 1 Murex 24.0

2 4= OpenLink 20.1

3 SunGard 16.1

4 2 Sophis 10.6

5 Misys 6.7


2006 2005 Company %

1 1 Misys 22.5

2 2 Murex 20.7

3 SunGard 17.9

4 3 Calypso 9.3

5 4 Sophis 7.1

FRONT- TO BACK-OFFICE

Collateral management Number of companies cited: 18

2006 2005 Company %


2 3 SunGard 15.8

3 2 Murex 10.4

4 4 Misys 7.5

5 5 Lombard Risk 6.8

Basel II Number of companies cited: 19

2006 2005 Company %

1 2= Fermat 16.6


3 2= SunGard 10.9

4 4 Misys 8.9

5 SAS 8.7

OTHERS

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RANKINGS 2006



Documents

prize Race for the...again, Murex has topped the overall rankings, with ﬁrst places in seven categories, including cross-asset trading and front- to back-oﬃce systems, second place