Axiom Software is offering two new products to help dealers ensure they comply with regulatory requirements – and spot rogue trading activity. Neil Wilson reports

In early October, New York’s Axiom Software Laboratories (ASL) launched two new products promising important applications for banks and securities firms that trade in derivatives and other financial markets. One product, ControllerView, is designed to generate the specific reports required by regulators and auditors. Reporting requirements covered include those of the Federal Reserve and Securities & Exchange Commission in the US, and the Bank of England and Securities & Futures Authority in the UK, although ASL says it can be adapted for the requirements of any global regulator. The other product, ComplEye, is a surveillance system designed to help compliance officers and risk managers identify trading irregularities, such as front-running, marking-to-close and insider trading.

BOTH PRODUCTS build on the existing architecture set up by ASL over the past decade. The core building blocks are ASL’s Financial Data Warehouse and Integration Center. The same building blocks were used last year for ASL’s launch of RiskMonitor, a VaR-based system for managing market, credit and liquidity risks. Together with RiskMonitor, ComplEye and ControllerView represent a further expansion in the firm-wide risk management functionality offered by ASL, especially for derivatives. ASL has thus attracted increasing attention in the derivatives industry, although it has developed from a somewhat different starting point than other firms specializing in risk management software. The firm founded and still owned by Alex Tsigutkin, began by tacking data management in large scale and diverse global operations. From offering solutions in data management, ASL has gradually moved across into risk management. Tsigutkin, however, emphasizes that ASL has never tried to offer a ‘closed’ solution. "Other providers can also use our platform as the foundation for their risk management systems," he says. Data management remains the key to ASL’s philosophy. "About seven years age, we got involved in several projects for global banks (mostly based in the US), who needed the capability of integrating various sources of information for the purpose of reporting across different product lines," Tsigutkin explains. One of the most important of these was for the North American operations of the Industrial Bank of Japan, which was attempting to consolidate many diverse types of trading reports. This led to the creation of ASL’s Financial Data Warehouse. "We realized there was a great gap between the data itself and the ability of business people to make sense out of it ... that there was a need for a business rules definition, to allow managers to define the method of data aggregation visually," Tsigutkin says. "The most important aspect is in gathering the data from disparate systems." ASL’s experience with data management this gives the firm an important edge, Tsigutkin believes, over other risk management providers who are now struggling with the task of data integration in the quest to produce firm wide solutions. "Risk management operations need the capability to define very complex portfolios globally, spanning various product areas," he points out. Lehman Brothers, together with one of the big Swiss banks, is now among the major players using Axiom methodology for data management in its global risk management operations, including the RiskMonitor product.

IT IS TOO early to tell how the market will receive ComplEye and ControllerView. At this time of writing, a number of big institutions were still evaluating them. ComplEye is perhaps the most intriguing – as it attempts to offer risk managers and compliance officers some tools that might have been used, for instance, in identifying irregularities in trading reports sent back to head office by traders like Nick Leeson at Barings. According to ASL, ComplEye can generate an extensive hard copy and database audit trail designed to identify exceptions from the company’s trading policies. These are then forwarded to an on-line monitoring facility which distributes exceptions reports to trading supervisors or designated surveillance personnel. The product is available on Intel and Unix operating platforms, and ASL says it is both "intuitive and user friendly." Whether ComplEye offers enough new tools to root out the really determined rogue trader remains to be seen. Given the heightened emphasis on management controls, it seems logical to assume that many banks and securities firms will take a close look at it.

Reprinted with the permission of FUTURES & OPTIONS WORLD ISSUE 307 DECEMBER 96