Annual Sell-Side Survey<br />FINCAD 2011<br />
Accurate Risk Assessment Remains the Biggest Challenge for Sell-Side<br />Summary<br />28% of sell-side participants said ...
Accurate Risk Assessment Remains the Biggest Challenge for Sell-Side<br />Summary<br />69% of sell-side respondents report...
Interest rate derivatives continues to dominate the trading activities of banks<br />Respondents surveyed primarily traded...
Structured Products<br />Structured products have been around for a number of years. From the survey, 44% of respondents r...
Structured Products<br />The most popular asset classes in their structured products portfolio were fixed income (57%) and...
87% of respondents are adjusting their risk management strategy<br />Similar to last year’s survey, respondents are contin...
87% of respondents are adjusting their risk management strategy<br />What steps have you taken to adjust your risk managem...
87% of respondents are adjusting their risk management strategy<br />Monte Carlo VaR topped the list as the most important...
Third party analytics - It really is build AND buy<br />Still not using 3rd party analytics? Those who aren’t are using 3r...
Third party analytics - It really is build AND buy<br />When selecting a 3rd party analytics library, ease of use and inte...
63% of respondents expect a moderate to major impact from regulatory changes<br />There are a lot of regulatory changes on...
63% of respondents expect a moderate to major impact from regulatory changes<br />How significant of an impact do you thin...
Risk management remains the biggest challenge banks face with respect to derivatives<br />Overall, accurate risk assessmen...
Risk management remains the biggest challenge banks face with respect to derivatives<br />What is the biggest challenge yo...
Growth for banks expected in front and middle office<br />Banks are looking to expand their front office (43%) more than a...
Majority of banks expect IT spending to increase in 2011<br />Most of the respondents (53%) expected to increase their IT ...
Methodology<br />FINCAD conducted an online survey of sell-side professionals from around the world. The survey took place...
About FINCAD<br />Founded in 1990, FINCAD provides advanced modelling solutions built on award-winning, patent pending tec...
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FINCAD Annual Sell-Side Survey 2011

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FINCAD Annual Sell-Side Survey 2011

  1. 1. Annual Sell-Side Survey<br />FINCAD 2011<br />
  2. 2. Accurate Risk Assessment Remains the Biggest Challenge for Sell-Side<br />Summary<br />28% of sell-side participants said accurate risk assessment was their biggest challenge. Most respondents planned to make some adjustment to their risk management strategy. The most popular adjustments included greater analysis and awareness of model risk (51%) and carrying out stress testing and scenario analysis (46%). The most important type of risk analysis mentioned by the sell-side respondents was Monte Carlo VaR (31%).<br />ŠŠOther areas seen as a challenge for the sell-side included independent pricing and valuation (21%) and regulatory compliance (20%).<br />ŠŠOver the past 12 months, major changes have been taking place in the regulatory landscape. As a result, it was no surprise that 63% of the sell-side respondents felt that there would be a moderate or major impact on their business.<br />
  3. 3. Accurate Risk Assessment Remains the Biggest Challenge for Sell-Side<br />Summary<br />69% of sell-side respondents reported using third-party analytics exclusively or in conjunction with their in-house system. And when they evaluate a third party analytics platform, easy to use/implement (45%) and transparency into the models (45%) topped the list as the most important features. Other factors that were also important included adaptability to changing market conditions (42%) and strong support services (41%).<br />With all of the changes taking place in the market, it was not surprising that most sell-side (53%) respondents expected to spend more on IT in 2011. Systems and tools need to be updated in order to meet the needs of an ever-changing marketplace.<br />
  4. 4. Interest rate derivatives continues to dominate the trading activities of banks<br />Respondents surveyed primarily traded interest rates derivatives (60%). This was followed by fixed income (47%) and FX (44%).<br />What types of derivatives are you heavily trading? (n=600)<br />Hybrids<br />Interest Rate<br />Commodities<br />Energy<br />Fixed Income<br />Equity<br />Foreign Exchange<br />Credit<br />Other<br /> 11.8%<br /> 59.7%<br /> 18.8%<br /> 9.0%<br /> 47.3%<br /> 29.7%<br /> 44.2%<br /> 25.0%<br /> 13.3%<br />
  5. 5. Structured Products<br />Structured products have been around for a number of years. From the survey, 44% of respondents reported trading, structuring, supporting or selling structured products in their role.<br />Are you trading, structuring, or supporting structured products in your current role? (n=593)<br />56.5%<br />Yes<br />No<br />43.5%<br />
  6. 6. Structured Products<br />The most popular asset classes in their structured products portfolio were fixed income (57%) and rates (56%), followed by FX (40%).<br />What asset classes are used in your structured products portfolio? (n=257)<br />Credit<br />Commodities<br />Equities<br />Foreign Exchange<br />Fixed Income<br />Rates<br /> 35.4%<br />24.1%<br /> 33.5%<br /> 40.1%<br /> 57.2%<br /> 55.6%<br />56.5%<br />43.5%<br />
  7. 7. 87% of respondents are adjusting their risk management strategy<br />Similar to last year’s survey, respondents are continuing to place the emphasis on model risk and scenarios. Half (51%) of the respondents reported that they are placing greater analysis and awareness of model risk, while 46% are adjusting their risk management strategy by carrying out more stress testing and scenario analysis.<br />Almost one-third (30%) have made a heavy investment into risk management, while less than 13% said they haven’t made any adjustments.<br />56.5%<br />43.5%<br />
  8. 8. 87% of respondents are adjusting their risk management strategy<br />What steps have you taken to adjust your risk management strategy? (n=541)<br />Heavy investment into risk management<br />Greater analysis and awareness of model risk<br />Implementation of independent valuation methods<br />Actively carrying out stress testing and scenario analysis<br />We haven`t made any adjustments<br /> 29.8%<br /> 50.8%<br /> 38.8%<br /> 46.0%<br />12.6%<br />
  9. 9. 87% of respondents are adjusting their risk management strategy<br />Monte Carlo VaR topped the list as the most important type of risk analysis method used (31%). CVA and PFE were seen as the most important for approximately one in five who responded to this question.<br />What steps have you taken to adjust your risk management strategy? (n=541)<br />19.8%<br />9.8%<br />Monte Carlo VaR<br />PFE (Potential Future Exposure)<br />EPE (Expected Probability Exposure)<br />CVA (Credit Value Adjustment)<br />None of the above<br />21.1%<br />18.7%<br />30.7%<br />
  10. 10. Third party analytics - It really is build AND buy<br />Still not using 3rd party analytics? Those who aren’t are using 3rd party analytics are in the minority. Only 32% report not using an outside library, while 69% either exclusively used a third party library (22%) or a combination of a 3rd party library and an in-house library (47%).<br />In your role, is your primary derivatives analytics tool an in-house solution or are you using a 3rd party analytics library? (n=530)<br />Built in-house<br />Purchased 3rd party analytics<br />Combination of both<br />46.8%<br />21.7%<br />31.5%<br />
  11. 11. Third party analytics - It really is build AND buy<br />When selecting a 3rd party analytics library, ease of use and integration (46%), transparent documented models (45%), adaptability to changing market conditions (42%), and strong support services (41%) were the most important features.<br />Rate how important the following factors are for selecting a 3rd party analytics library. (n=344) 1=Not at all important; 5=Very important<br />
  12. 12. 63% of respondents expect a moderate to major impact from regulatory changes<br />There are a lot of regulatory changes on the horizon. As the changes start to become a reality, respondents felt there would be more impact on their business this year, when compared to those who answered the survey last year.<br />In the 2011 survey, 63% of respondents felt that the regulations would have a moderate or major impact on the way they do business compared to only 56% in 2010. This year, a little more than a third (37%) felt that they were well prepared so they would face minimal or no impact. Last year, this number was higher (43%).<br />43.5%<br />
  13. 13. 63% of respondents expect a moderate to major impact from regulatory changes<br />How significant of an impact do you think regulatory changes regarding derivatives will have on your business area? (n=496)<br />No Impact – we are well-prepared<br />Small impact – some minor changes will need to be implemented<br />Moderate impact – notable changes will be required<br />Major impact – significant changes will have to be made to accomodate new regulations<br />42.3%<br />20.4%<br />25.8%<br />11.5%<br />
  14. 14. Risk management remains the biggest challenge banks face with respect to derivatives<br />Overall, accurate risk assessment was listed as the biggest challenge by respondents in the 2011 survey as it was in the 2010 survey. The next two biggest challenges cited were independent pricing (21%) and regulatory compliance (20%) with one in five saying this was the biggest issue for them.<br />A new response option was added to this year’s survey. We asked about the flexibility to offer a more diverse range of products – 18% reported this was their biggest challenge, with this being the biggest challenge for 22% of respondents working at investment banks and 21% of respondents working at commercial banks.<br />43.5%<br />
  15. 15. Risk management remains the biggest challenge banks face with respect to derivatives<br />What is the biggest challenge you currently face with respect to derivatives? (n=496)<br />Independent pricing/valuation<br />Accurate risk assessment<br />Regulatory compliance<br />Achieving transparency in financial reporting<br />Flexibility to offer a more diverse range of products<br />Other<br /> 20.8%<br /> 28.4%<br /> 20.4%<br /> 7.9%<br /> 17.5%<br />5.0%<br />
  16. 16. Growth for banks expected in front and middle office<br />Banks are looking to expand their front office (43%) more than any other area, although 32% of respondents reported the middle office was the area expected to expand. Only 16% of respondents mentioned the back office would be expanding. In the 2010 survey, only 34% of the respondents said the front office was going to expand the most and 33% mentioned the middle office.<br />What division within your organization do you expect will experience the most significant expansion in 2011? (n=496)<br />31.5%<br />Front Office<br />Middle Office<br />Back Office<br />Other<br />16.5%<br />9.3%<br />42.7%<br />
  17. 17. Majority of banks expect IT spending to increase in 2011<br />Most of the respondents (53%) expected to increase their IT spend, while one-third (34%) believed that it would stay the same. Only 13% thought there would be a decrease.<br /> What are your expectations for IT spending throughout 2011? (n=495)<br />13.1%<br />Spending will increase<br />Spending will decrease<br />Spending will remain the same as in 2010<br />33.5%<br />53.3%<br />
  18. 18. Methodology<br />FINCAD conducted an online survey of sell-side professionals from around the world. The survey took place throughout April 2011.<br />Respondents indicated that they worked in the following organization types:<br />Regional bank<br />Private bank<br />Investment bank<br />Commercial bank<br />Broker-Dealer<br />Other<br />31.0%<br />3.4%<br />17.9%<br />22.4%<br />16.6%<br />8.6%<br />
  19. 19. About FINCAD<br />Founded in 1990, FINCAD provides advanced modelling solutions built on award-winning, patent pending technology.  With more than 4,000 clients in over 80 countries around the world, FINCAD is the leading provider of financial analytics technology, enabling global market participants to make informed hedging and investment decisions. FINCAD provides software and services supporting the valuation, reporting and risk management of derivatives and fixed income portfolios to banks, corporate treasuries, hedge funds, asset management firms, audit firms, and governments.  FINCAD Analytics can be accessed through Excel, MATLAB, as a Software-as-a-Service or embedded into an existing system through software development kits.  Now, over 70 FINCAD Alliance Partners embed FINCAD Analytics within their solutions. FINCAD provides sales and client services from Dublin, Ireland, and Vancouver, Canada.<br />For more information on how FINCAD is helping buy-side firms with many of the challenges expressed by this survey, visit: www.fincad.com<br />

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