IBM and Algorithmics today announced they will deliver and implement a new portfolio construction and risk management solution at Guotai Junan Securities, for security trading and fund management. Guotai Junan Securities is one of the top five securities firms in China and the first in Mainland China to trade advanced financial products such as derivatives.
The combined IBM and Algorithmics solution will assist Guotai Junan Securities in forecasting risks, as well as conducting sophisticated stress and scenario testing, to help ensure risks are managed in a controlled and informed manner.
According to Zuo Feng, chief compliance officer, Guotai Junan Securities, "Risk management, internal control and compliance will be some of the most important business developments in the Chinese securities industry in the years to come. To compete in this environment, Guotai Junan Securities needs to speak the international language of risk management. The organizational governance structure of Guotai Junan Securities has been established according to international standards. Now, we need to fill it with content in accordance with international standards as well.
"In developing our risk management solution and its system, we have been preparing patiently and planning for a long march in decades to come. Guotai Junan Securities is looking forward to harvesting the added values provided by this joint project with IBM and Algorithmics. Guotai Junan Securities aims to be one of China’s leading players in Securities. We believe the IBM and Algorithmics end-to-end solution and risk framework provides us with the essential tools to compete in the global securities markets."
To assist Guotai Junan Securities leapfrog into the sophisticated world of derivative trading, the project will leverage IBM’s Risk Management Framework services – including how to optimally set limits for traders, trade index options, and trading operations structures – with Algorithmics’ Algo Risk software solution.
Dr. Colin Lawrence, IBM’s China Risk Management leader adds, "Through this sophisticated risk system, provided by IBM and Algorithmics, Guotai Junan Securities will be able to explore alternative short-long strategies and be in excellent shape to do programmed trading once the equity index starts trading on the Shanghai Exchange."
Dr. Andrew Aziz, executive vice president of Risk Solutions at Algorithmics, comments, "This is our second landmark deal in China in the last few months, as the country’s leading financial institutions move towards adopting international risk management standards. We are delighted Guotai Junan Securities has chosen IBM and Algorithmics for assessing their risk exposures in a single, consistent, rigorous environment. We believe that Algo Risk will help it to make better decisions, because it is able to assess the impact of the risk factors most relevant to each portfolio and investment strategy, including sector indices, credit spreads, volatility surfaces and correlations, providing greater transparency to support investment decisions."
With the equities market in China trading at dizzying heights, the new risk management system will assist Guotai Securities in making much better risk adjusted profits alongside its traditional brokerage businesses no matter which way the market heads.
An example of such market uncertainty is the difference between performance in the equity market over 2005 – 2007 (up 300%) compared to the bear market in 2003 – 2005 where the market shrunk by 40% and Chinese security houses were in disarray.
"It’s always easy to look backwards at a bull market and state how good performance has been, but in practice one never knows with certainty how much a market will collapse. IBM has extensive experience in developing innovative leading-edge technology to assist financial institutions enhance their performance, and now together with Algorithmics our innovation has enabled Guotai Junan Securities to set the benchmark of excellence for market risk management in China." says Dr. Lawrence.
IBM and Algorithmics also announced today they are forming an alliance in China to continue developing end-to-end enterprise wide solutions covering market risk, counterparty risk and collateral management. Together they will provide the Chinese market with management consulting, the Algorithmics software solution and integration of systems technology.
Dr Andrew Aziz added, "We continue to be recognized as the overall leader amongst risk management companies globally, with one of the largest dedicated risk professional teams in the world. We are strongly committed to further expansion in emerging market economies worldwide, providing enterprise wide risk management solutions adapted specifically to meet local regulations and requirements."