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(This article provides information about Nasdaq Risk Platform, a cloud-based SaaS product, available to market participants.)
Ongoing market volatility has increased market risk – the risk that arises from movements in stocks, bonds, and other assets – which has in turn heightened trading and investing firms’ need for modern and optimized risk management technology.
“Reacting to volatility in real time is important, and stress testing becomes even more important,” Malcolm Warne, Head of Product for Nasdaq Risk Platform, told Traders Magazine. “If you can stress-test different parts of your portfolio – for example, your exposure to the banking sector, or crypto firms, or energy firms – you can isolate where your risk is concentrated and where you’re most vulnerable so you can take action now, rather than when it’s too late.”
The Nasdaq Composite Index has gained about 15% so far in 2023, following a decline of 33% last year, as equity investors eyed the Federal Reserve’s path of interest-rate hikes and weighed the risks of a possible recession. In fixed income, typically a low-volatility market, the benchmark 10-year US Treasury yield rose from about 1.25% in mid-2021 to above 4% in October 2022, and since has fallen back to 3.25%.
The episodic volatility and fast-moving markets underscore the importance of risk platforms helping market participants manage risk quickly, and nimbly. Legacy systems aren’t up to the task.
“The old model was, a customer buys a big box that caters to its projected volume, there’s a long project for software to be delivered and integrated, and then maybe a year later you have a working risk system,” Warne said. “With providers like us, the new model is, we deploy in the cloud, we manage the service ourselves, and we provide connectivity to market data providers, instrument data providers, and execution venues. The infrastructure is available in a fraction of the time it used to take to implement software and the connectivity is pre-built. This enables us to onboard new customers very quickly and deploy new functionality to them in an agile manner once they are onboarded.”
Nasdaq’s SaaS-deployed, cloud-native Risk Platform provides 24/7 multi-asset coverage for prime brokers, investment banks, broker-dealers, clearing brokers, commodity brokers, and energy trading firms. The platform, hosted in Amazon Web Services, can help to enable digital transformation of risk systems and benefit organizations firmwide to efficiently assess, understand and proactively manage risk exposure in aggregate.
Warne highlighted the importance of the cloud, which enables elastic compute and delivery of real-time performance at scale, for example with Nasdaq’s recently-launched streaming options analytics service. And the exchange operator deploys the same technology across its product suite.
“Nasdaq applies the same rigor and high standards to managing the Nasdaq Risk Platform as it does to managing its own markets,” Warne said.
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