The keys to navigating volatility successfully

Robert Frost, Global Head of Product

Volatility, a key factor for trading desks, made a striking return to capital markets earlier this month. Whether this represented a headache or a boon for your trading strategy, the need for effective risk management remains fundamentally important, especially through such periods of turbulence.

There is no doubt that all firms have improved their risk management processes and procedures exponentially over the last decade. However, as it’s been a hot topic in client and industry conversations of late, I put pen to paper for a timely reminder on “best practices” during such times.

So, how should firms navigate periods of volatility effectively and steer clear of potential headaches?

1. Automate exposure management & mark-to-markets

As we saw in previous periods of volatility, such as the meme stock rise in ‘21, industry participants realized that their risk-related exposure processes were often only as good as those of their trading counterparts.

For example, a firm that has invested internally in real-time, automated margin calculations with accurate and timely pricing, is still reliant on their trading counterparts also ensuring accuracy and timeliness with respect to their calculations and pricing, to be able to match and process margin calls quickly and efficiently.

2. Standardize tri-party processes

Similarly, where firms are using multiple external industry infrastructures, centralizing and standardizing exposure and margin processes can free up valuable investment dollars and increase straight-through-processing (STP) rates.

To give an example, many triparty exposures must be matched by both sides before collateral is moved. Automating and standardizing this process ensures that collateral is agreed swiftly, and that triparty agents can transfer collateral quickly.

3. Ensure digitized, real-time, collateral management

Once the exposures and margin calls are agreed and processed, it is essential that industry participants have robust and accurate collateral management processes. This is to ensure the correct collateral can be delivered, and that the collateral posted is optimized by the collateral provider.

So, if you’re active in securities lending, repo, derivatives, or collateral management, Pirum can help insulate your desks from the peaks and troughs of market cycles by:

• Connecting you to the wider ecosystem for immediate efficiency
• Standardizing your exposure processes, freeing up valuable investment dollars for your firm
• Optimizing and digitizing your enterprise collateral management capabilities for cost reduction and risk mitigation

Simply put, the front-to-back Pirum platform makes our clients more resilient and better equipped to navigate volatility successfully. They can also reinvest the gains (time, budget, resource, business intelligence) to grow their business today – and to be stronger and better equipped when volatility returns.

Disclaimer: The information in this blog does not constitute legal or other advice; all content available is for information purposes only and your reliance on any suggestions provided is at your own risk.