A consequence of the ongoing financial crisis: the financial system will have to ride a big wave of standardization.
Big regulatory wave
Regulatory bodies often use "standards" to designate principles and rules of financial regulation and supervision for the general and detailed business processes in the financial sector.
But, it seems regulation has become a synonym for centralization? It comes like a big wave and causes big changes of financial business principles, far beyond core capital rules, risk management requirements, …
It redefines game rules in pricing.
Standardization is good
No doubt, without standardization we'd have no powerful interfaces that transform one world into another.
In factory automation, ww standardized. If you don't have standard machine elements, function complexes, mechanisms, ... you need to make everything yourself from scratch. Even languages that are understood by machine, robot, vehicle, ... controls need to be standardized. Our high level task-oriented offline programming languages were compiled to standardized control code.
But we realized quickly: complex automated manufacturing tasks cannot be centrally supervized, they need to be organized as interplay of systems with local intelligence. The bottom-up fashion.
I am still for standardization but have reservations about strict supervision and centralization.
In banking, standards consolidate transactions, rationalize accounts. integrate payment environments and what have you.
But what about the impact of central counter parties?
Unintended consequences?
The impact of, say, central clearing? On the higher-level view it is reducing counter party exposure but may be resulting in an increase in liquidity risk. Such kind of centralization may drive a marginal cost regime with margin compression (OTC revenue reduction) ….
One of the rationales: Deloitte's Central Clearing for OTC Derivatives ...
Technology providers, will not be able to influence the rules, but
Individualize with UnRisk
We, at UnRisk, will put our best efforts to support small and medium-sized clients to evaluate the revenue impact and maybe refine product and sales strategies to their business strength.
Quants will become even more important as partners. Instruments will become less complex but the valuation space will become massive. Market dynamics will change basic rates more frequently. Consequently, the methodology to price a simple swap changes fundamentally, portfolio optimization gets another meaning, …
We offer the methodologies for these new regimes to be managed in our UnRisk Financial Language in combination with the UnRisk FACTORY Data Framework supporting the corresponding financial objects and data.
Designed to enable quants building systems for better trading decisions and risk-informed sales strategies under the new regime.
It was possible to provide it so quickly, because we have designed technologies and products orthogonally and designed a language that allows for describing other languages.
