Why does risk management remain such a ‘pain point’ for so many brokers?
We’re pleased to present our conversation on the topic with one of the true experts in the field, Jeff Wilkins of IS Risk Analytics. Here is what he had to say.
LR: Hi Jeff, and thanks for joining us today. Risk management technology is increasingly sophisticated and accessible. Why does risk management remain such a ‘pain point’ for so many brokers?
Jeff: It is and always will be the pain point. The reality is that brokers’ sales and marketing teams fight very hard to win business from one another as well as grow the overall size of the market. These teams are continually trying to come up with creative ways to bring in business. Many of these “creative” methods present unique challenges to the profitability of the overall business. Sales teams come up with volume incentives, bonus structures, and inventive ways to attract business. Quite often, these strategies do not have the bottom line in mind. Risk is something different. Risk managers want to defend the house and enable the business to grow sustainably. There is continual pressure to show positive results and limit any downside.
LR: Is there a big difference in the various risk management services on offer to brokers from third party organisations? How does IS Risk Analytics differentiate from competitors?
Jeff: We are better, we are bigger, we are more sophisticated and with every situation we deal with, our knowledge base gets stronger. There is simply no way for any competitor to have the vantage point we have at IS Risk Analytics. We see a situation arise with a UK based broker and within seconds it can possibly spread to an Australian broker, then to Hong Kong. This is just an example, but it is real. We are incredibly systematic in how we operate, and our team is light years beyond any competitor. The only business we ever lose is to a “liquidity provider” offering massive revenue shares with no down side, credit and other unrealistic deals that enable them to attract business they would otherwise have no chance at touching. At ISRA, we’ve seen this, and we have seen brokers get burned. The respectable brokers know better and don’t fall for these tricks. The main difference is that our customers and ISRA are above the gimmicks that are so common in our industry.
LR: How is IS Risk Analytics structured?
Jeff: The ISRA team has a very deep history of managing risk and developing technology for the OTC markets. We have a highly specialized, expert team which is comprised of risk and operational coverage, quantitative analysts, software architects, infrastructure specialists and business development.
Risk management and technology are at the centre of a broker’s business, and our coverage team’s focus is to support our clients and communicate their needs within our firm, whether it be on a technology, risk or any other front. Once our clients’ needs have been communicated internally, the technology and quant teams tailor solutions to meet their needs.
LR: Do you tend to encounter similar situations from all the brokers you work with or is every broker different?
Jeff: Every broker is different which is why we have customised strategies for every client, whether they are large or small. However, it is quite common for brokers to share similar problems. The single largest advantage we have at ISRA is our vantage point in the industry. We can see trends and activity causing issues in one region, and we know how those trends normally spread.
A recent example is malicious signal based USDNOK flow. At ISRA, we saw this develop in one region of the world, then spread throughout Europe and down to Australia. We can detect and mitigate this on day one/trade one because we could anticipate this coming due to our cross-industry visibility. This vantage point doesn’t happen overnight. It has been built over many years of experience and relationship building. Brokers who utilise ISRA’s services are always several steps ahead of their competition when it comes to risk management.
LR: What do you consider to be the greatest achievements of IS Risk Analytics?
Jeff: Honestly, there are two things.
First, the sale of our former entity to a company owned by a $4 billion hedge fund is such a great testament to our capabilities. Not only was that a great deal for all parties involved, but the injection of intelligence and systematic capabilities into our ecosystem moved us from strength to strength.
Second, the fact that we’ve never had a customer suffer from a major market event. SNB, Brexit, Flash Crash, etc. Our customers have not only weathered these storms, but have thrived because of our support. After each event, our customers are watching competitors put their house back in order, while they aggressively capture their market share.
LR: What are the advantages to your clients of being part of the ISAM Capital Markets group?
Jeff: ISAM Capital Markets Group is the ecosystem that allows brokers to know that the most important part of their business is being handled properly. There is no point in sales and marketing efforts if a broker cannot consistently monetise trade flows. With the ISAM Capital Markets group, we have industry-leading liquidity solutions, bridging, risk services and much more. Everything we do is systematic, and we enable a broker to focus on growing its business.
LR: How do you see risk management technology and services evolving and what are the key industry developments we should expect to see in the future?
Jeff: The main thing I see are systems getting stronger. Brokers will continue to move away from ad hoc manual solutions to more systematized and structured risk management solutions. This has long been the focus at ISRA and will continue to be so moving forward.