Challenge
Changes in futures prices during the trading day affect the risk of an investor’s position in the market. Both the broker that makes trades on the investor’s behalf and the clearing house that manages and settles the investor’s trades want to minimize the investor’s exposure to risk. The broker wants to minimize the possibility of making margin calls to investors at the end of the trading day, when accounts are settled and cleared. As the guarantor of the futures exchange on which the investor trades, the clearing house wants to minimize the possibility that the trader will default on trading obligations. The clearing house also wants to reduce the risk of requesting variation margin payments from brokers as a result of intraday fluctuations in futures prices.
The management of the daily risk in investor positions requires complex analysis of both trading activity and price fluctuations. Brokers and clearing houses needed a tool that would help them perform this analysis. The tool would need to alert brokers or clearing house managers when an investor’s risk exceeded certain thresholds.
Expert Object solution
Expert Object developed RiskView—a Web-based tool that gives a broker or a clearing house the ability to view information on the position of an individual investor throughout the trading day. RiskView calculates the risk potential for trading accounts based on information about the intraday fluctuations in futures, account positions, and account margin amounts.
Users of RiskView can organize how the tool displays risk information. Users can query account information for ad hoc risk analysis.
Result
Brokers and clearing houses have a real-time view of the risks that investors face throughout the trading day. RiskView provides information to brokers and clearing houses that aids in reducing investor risk.
