SOC2 compliance risk management

In an era of stringent regulatory frameworks, compliance is non-negotiable. When it comes to adhering to market abuse, the market surveillance system has become more embedded in the firm’s technical infrastructure. The beating heart of this system is the trading and market data. In this blog, we delve into the importance of this data and how KRM22 ensures it flows to support the compliance team.

At the core of market abuse monitoring is the need for a comprehensive understanding of market dynamics. Clearly without quality data, compliance teams are unable to have a panoramic view of trading activities, price movements, and order flows. This comprehensive market insight enables surveillance systems to identify anomalies, detect potential market abuses, and ensure fair and transparent trading practices.

Market Surveillance not only integrates with standard back office systems, ensuring stable data mappings, but also takes feeds from market data providers such as Barchart, Lexis Nexus, Refinitiv and Bloomberg. By standardising this data, we reduce the time to go live as well as providing the highest quality data.

Financial markets are dynamic and subject to constant evolution. Having a quality source of data enables market surveillance systems to adapt and evolve alongside market changes. Market Surveillance’s Sandbox functionality allows firms to adjust parameters and run against historical data to see how alerts would have fired against new conditions. This adaptability is crucial for staying ahead of emerging risks and compliance challenges.

As we move to a more AI driven compliance industry, market surveillance systems are becoming more reliant on historical and real-time data to recognize patterns and detect anomalies that may indicate market abuse or fraudulent activities. The more diverse and extensive the dataset, the more adept the surveillance system becomes at identifying subtle deviations that may elude human observation. The Market Surveillance team at KRM22 is constantly looking at how we can use the standard data sets available to enhance the compliance team with “round the corner” investigative techniques.

In conclusion, the role of data in market surveillance systems cannot be overstated. It serves as the cornerstone, providing the necessary insights, adaptability, and accuracy required to navigate the complexities of financial markets. As these systems continue to evolve, fueled by advancements in technology and data analytics, the synergy between data and market surveillance will play an increasingly pivotal role in safeguarding the integrity of global financial ecosystems. At KRM22 we put data at the forefront of our design methodology, and are using it to drive the next generation of Market Surveillance.

Speak to us about how we can help make sense of your trade and market data.

Risk Manager's VaR Analysis and configuration

In our recent blog post, we took a look at the challenges facing derivatives risk management. Following on from this summary, we take a look at how stress testing and scenario analysis has become a hot topic, and how the Risk Manager provides help in this area.

The derivatives market is inherently sensitive to a myriad of factors – geopolitical events, economic indicators, and sudden shifts in investor sentiment. Stress testing, in essence, involves subjecting a portfolio to simulated adverse conditions to evaluate its performance under duress. This goes beyond the routine risk metrics and provides traders with a nuanced understanding of how their portfolios might behave in the face of extreme market movements or unforeseen events.

The challenge lies in the complexity of derivatives and the need for a comprehensive historical lookback to inform stress testing accurately. Traditional risk management systems, often designed for simplicity and efficiency, may fall short in capturing the intricate interplay of variables in derivatives trading. Traders relying on rudimentary stress tests risk overlooking potential vulnerabilities that could manifest in turbulent market conditions. This gap in stress testing capabilities can lead to suboptimal risk mitigation strategies and, in the worst-case scenario, expose portfolios to significant financial losses.

Risk Manager is a comprehensive solution designed to tackle the nuances of stress testing and scenario analysis in the derivatives space. The system stores risk calculations in an AWS Time Series database, providing traders with a rich repository of historical data. This historical lookback capability empowers traders to create detailed risk profiles and establish trend analyses, allowing them to identify patterns and anticipate potential challenges based on past performance.

Risk Manager's VaR Analysis and configuration

Simple VaR and Stress management

Risk Manager doesn’t stop at historical analysis; it goes further by facilitating custom calculations and rankings. Traders can define their own risk parameters and establish a hierarchy of actions based on the outcomes of stress tests. This flexibility is crucial in a market where standardized approaches may not capture the intricacies of individual trading strategies. Custom calculations and rankings empower traders to tailor stress tests to their specific needs, ensuring a more accurate reflection of their portfolio’s response to adverse conditions.

However, stress testing is not solely about identifying weaknesses; it also encompasses fortifying the portfolio against potential risks. Risk Manager’s integrated approach, combining P&L, VaR, Margin, and Stress in a consolidated view, provides traders with a holistic understanding of their portfolio’s risk exposure. This unified view is invaluable in decision-making, offering a comprehensive analysis that goes beyond isolated risk metrics.

Risk Manager's VaR Analysis and configuration

See P&L, VaR, Margin and Stress combined in one chart

In conclusion, stress testing and scenario analysis are indispensable tools in the derivatives trader’s toolkit. In the face of increased market volatility and the unpredictability inherent in derivatives, a robust risk management system that encompasses historical lookback, custom calculations, and comprehensive risk analytics is not just a necessity—it’s a strategic advantage. Risk Manager is a unique system aimed at empowering traders to navigate the stormy seas of derivatives trading with confidence, armed with insights derived from thorough stress testing and scenario analysis.