Derivatives, Financial Engineering and Risk Management

Axiomatic: the truth about Axiom

By Louise Marshall

Axiom Software Laboratories is one of the few enterprise-wide risk management firms in the market still to remain independent of the growing band of consolidated risk management technology providers. And it intends to stay that way, according to president and founder, Alex Tsigutkin. the firm was established in 1988, and is still privately owned, contrary to rumors currently circulating the market. rival vendors have linked Axiom’s name with that of a large international vendor. But Tsigutkin remains adamant that his firm is not interested in a merger.

The Wall Street-based firm offers a range of products, from its high-performance analytical engine, RiskMonitor — an off-the-shelf product for integrating and managing market, credit and operational risk — to its more recent applications like ComplEye, which deals with trade surveillance and other compliance issues.

But perhaps the most fundamental part of the Axiom’s battery, and one of its major strengths, is its Dynamic Data Warehouse, which, says Tsigutkin, “handles complete data management for all types of transaction — including decision support — market data, deal and back office information, and also legacy and control data”.

The dynamic nature of these products is key to Axiom’s functionality, but not its only strength. “Data warehousing and management definitely form the foundation for decision support, including risk management. But nowadays we are also finding additional pieces of the puzzle,” says Tsigutkin.

“We now find that not only the data management foundation is crucial, but also messaging and communications, as well as the ability to work with many different applications and software from other vendors. In particular, the dynamics of our products relate to utilization of the best of analytical software.”

Tsigutkin says that Axiom will continue to pursue its present policy of joint initiatives with other companies, such as Mark Garman’s FEA and Monis Software, on a strategic basis. Such ventures have been part of the company’s strategy for some time, and have helped to achieve its current strong position in an increasingly competitive marketplace. But they are only part of the plan.

“And of course, we still use the flexibility of data management as a center for research and development, especially in the area of new products, as well as in dealing with new portfolio risk,” says Tsigutkin. Another of Axiom’s product range, ControllerView, helps — thanks to that same dynamic Data Warehouse — to generate financial reports for large institutions.

Risk-free trial
Axiom lists among its clients SBC Warburg Dillon Read, Fuji Bank, and Bayerische Vereinsbank. And potential clients can test drive the firm’s products in the most user friendly of ways. Says Tsigutkin:”Most of our clients decide to go with Axiom having already tried it out. We offer to run a pilot for them, which is something that not every vendor is capable of doing.”

This involves not so much of a trial run, but more of a virtual pilot mission... “Axiom makes it possible for the client to take information from its live systems and run it through RiskMonitor”, explains Tsigutkin, “so that its risk management team can see what they should expect when they get the product — the types of report, and the kind of flexibility Axiom’s software affords.”

“The way the offering works,” he says, “is that we receive all the necessary information from the client on a daily or weekly basis — or even on demand — and we adapt our product to utilize that information.” Input can be from any external source, he explains: “This allows us to quickly process the risk data, utilizing specific risk assumptions”. Reports can subsequently be made either electronically or in hard copy format.

And once acquired, the applications are just as simple to maintain. “Either we can update the product ourselves, or in many cases our clients have the ability to do it for themselves. Because it’s a dynamic system. And this is part of the reason that the products are so popular — because they do not require intense programming, and can be configured through a risk administration application that we offer as a part of RiskMonitor product information.”

Axiom software is compatible with all the major hardware platforms, adds Tsigutkin, who is the architect of the firm’s product line. He studied at Yeshiva University, where he obtained his BSC in computer science and applied mathematics. He went on to obtain his MSC in business systems and applications from the Polytechnic University of New York.

Dynamic duo
In recent months the firm has branched its business out into another main line of operations, that of outsourcing its risk management services. “The number of requests from mid-size to smaller institutions — and corporate's as well — who are looking to outsource their risk management software and reporting, has increased greatly,” says Tsigutkin. “Don Mumma, who is head of this practice, has been very successful in eliciting a great deal of interest from the market.”

In August, the firm appointed Mumma, a former Credit Suisse and Toronto Dominion executive, who most recently ran his own consultancy practice, and who has over 20 years of experience in finance and risk management, to the post of managing director in its nascent outsourcing business. One significant area of Mumma’s experience in this regard is in the energy and utility businesses, operational sectors which are providing a particularly rich vein of interest for Axiom. Among its clients on this front is TransCanada PipeLines, and the increasing integration of the energy markets with the world of risk management, coupled with increasing liquidity of energy hedging instruments, is ensuring a greater field of inquiry.

While large accounting consultancies like Deloitte’s CSL — which is currently planning a flotation — are also gearing up in the risk management consultancy business, Tsigutkin sees these players’ interests as complementary rather than competitive. And quite often, Axiom works in tandem with these large consultancy firms to bring its risk management solutions to the end-user. Another differentiating factor is that Axiom’s relationship with its clients is on a much more permanent basis: ongoing rather than one-off.

Red alert
One thing is emerging from the pan-market credit crunch, and that is an increased interest in risk management tools and methods. “It is difficult to say whether we are seeing interest because of LTCM, or whether it is due to the general market situation, or simply due to the fact that risk managers are becoming sophisticated,” says Tsigutkin. But Axiom has certainly seen the latter point exemplified. “Risk management is so much more sophisticated than when we first introduced our product. Also, many of our users joined us with a level of sophistication that is general to the market place. But once they discover the capabilities of RiskMonitor — not only as a risk processing tool, but also as a kind of risk research laboratory — they start to become more sophisticated in the ways they use risk measurement. They tend to become more advanced in their portfolio composition; expanding and making their portfolios more efficient.”

Could RiskMonitor have helped prevent a situation like LTCM occurring? “It could definitely help in establishing at least the indications of a potentially occurring threat in the markets,” he says. “There are certain events that took place in the past couple of months that are extraordinary and cannot be expressed with standard statistical approaches, and in particular there are distributions available in the market or could be utilized to capture such rare events as the one that took place.”

“The flexibility and dynamism of the technology that we are developing and using, allows us to associate different types of market information with the underlying portfolio, and that flexibility allows us to capture and treat appropriately certain risk factors which are rare — and to be able to factor them into the overall risk management model.” Similarly Axiom’s software and technology can also be used to help guard against operational risk, says Tsigutkin.

And it is through use of its products that the firm reckons its clients come to realize the appropriateness of its choice of name. “As you know, the word axiom means a self-evident truth,” says Tsigutkin, “and that’s what we have been trying to present to our clients.” They can try the products for themselves and discover the self-evident truth of Axiom’s suitability for the job at hand.

Reprinted with the permission from futures & options world