Market risk management product of the year: Murex

It is a measure of the strength and depth of Murex’s risk capabilities that it was one of the first to offer a packaged solution for the Fundamental Review of the Trading Book. FRTB presents a challenge to institutions and software vendors alike with its complex and evolving requirements, need for the alignment of models and valuation between front office, finance and risk, and the huge computational demands of its capital calculations. Murex had the expertise as well as the tools and technology in the form of its MX.3 cross-asset front-to-back-to-risk platform to create a package for FRTB internal model or standard approach ahead of regulatory deadlines.

Sixteen institutions globally have licensed MX.3 for FRTB in the past year, many of which were not previously MX.3 Market Risk users. Four of these are in Asia-Pacific, which is remarkable given that none of the regulators in the region has signalled an intention to introduce the new rules early. Overall, MX.3 Market Risk is used by more than 30 institutions in the region, including many of the largest banks in Australia, China, India, Indonesia, Japan, Malaysia, Singapore and Thailand.

“As a result of our early investments in FRTB, we released a production-ready version of our solution well in advance of other vendors,” says Alexandre Bon, Murex head of marketing and strategy, Asia-Pacific. “This has helped our clients launch their preparations for compliance early, allowing them to initiate large-scale transformation projects to replace legacy risk systems, and – in some jurisdictions – to begin early engagements with their supervisory authorities in anticipation of a resource squeeze as the compliance dates come close.”

Murex first added market risk to its cross-asset front-to-back platform 15 years ago and has been extending its risk capabilities ever since. These now include the calculation of risk sensitivities, across all asset classes, risk-scenario generation, historical and Monte Carlo value-at-risk, stress-testing, risk profit and loss attribution, backtesting and risk limits control.

Murex has been particularly mindful of the needs of risk operations teams and designed MX.3 Market Risk to include comprehensive mechanisms to define and control the scope of risk calculations, as well as provide detailed feedback on ongoing and completed computation processes.

“MX.3 offers high performance risk-reporting tools that allow users to display and analyse risk results from top of the house down to the individual trade or scenario level, with complete flexibility to design custom views and aggregation dimensions,” Bon says.

For FRTB in particular, the platform has been enhanced to deliver complete coverage for all aspects of the internal model approach calculation chain, including stressed-period scenario generation, modellable risk factor-expected shortfall, non-modellable risk factor charge, default risk charge, backtesting and all elements of the standard approach.

MX.3 offers high performance risk-reporting tools that allow users to display and analyse risk results from top of the house down to the individual trade or scenario level, with complete flexibility to design custom views and aggregation dimensions

Alexandre Bon, Murex 

Since 2017, Murex has been adapting its products for the cloud, giving users a range of options for how they can take advantage of the high performance and low-cost features of the technology. This includes the use of private, public and hybrid cloud configurations, offloading heavy risk computations from on-premises installations to the cloud, running full applications in a cloud environment, or accessing MX.3 through Murex’s cloud-based software-as-a-service offering. 

Major Australian banking clients of Murex are in the forefront of adopting cloud, with the new regulatory regime likely to push them further in that direction. “With the FRTB coming, they understand that accessing ‘elastic’ infrastructure will be a powerful device to manage full-revaluation batch computation runs, as well as their periodic backtesting and stress-testing requirements,” says Bon.

Murex says that, FRTB apart, over the past 12 months there have been two main themes in its market risk projects in the region. Many long-standing clients are replacing legacy risk systems with MX.3 for more consolidated and simplified system architectures, while several new banking clients are undertaking large-scale front-to-back-to-risk ‘re-platforming’ programmes based on MX.3.

An example of the first is RHB Bank Berhad, which wanted to modernise and future-proof its treasury and risk infrastructure and replace multiple legacy systems with a single platform that offered a wider range of derivatives products than it was historically able to handle, and could give a clear and unified view of its business, from front-office activities through to risk management, treasury, settlement, accounting and reporting. The bank is now live on MX.3 for all its global market activities for Islamic and conventional finance, and has overhauled its VAR, backtesting, stress-testing and market risk limits framework.

In another recent innovation, Murex has extended its MXpress pre-packaged functionality designed for fast implementation to cover market risk. The packages are based on industry best practice tailored with local specifics. These have been welcomed in Asia, says the company, particularly packages for market risk limits for net open positions, interfaces to risk data for non-modellable risk factors, and multi-curve collateral-based discounting.

“Using MXpress has not only allowed our clients to speed up project delivery, but has enabled them to benefit from Murex’s expertise and long-standing partnerships with leading global and regional banking institutions,” says Bon.

An Asia Risk judge says: “Murex offers comprehensive functionality and its single consistent risk platform is a big plus. It has a large market risk management user base in Asia. Smaller institutions, who in earlier years might not have been able to afford an in-house system, can now use Murex’s cloud-based services.”