ACM
Transactions on
Reconfigurable
Technology and
Systems
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This quarterly publication is a peer-reviewed and archival journal that
covers reconfigurable technology,
systems, and applications on reconfigurable computers. Topics include
all levels of reconfigurable system
abstractions and all aspects of reconfigurable technology including platforms, programming environments
and application successes.
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Data exchange standardization
IT specialists might be surprised to
learn that there are no standardized
data exchange formats for traded asset
classes. Some financial experts say it is
difficult or even impossible to develop
data exchange standards that cover all
elements needed for sound risk assessments. The financial market is highly
product driven, with extremely short
development cycles. Standardization
of data exchange formats might never
catch up with what is being traded.
But, as every seasoned IT professional
realizes, such standardization must
be part of the product. Otherwise, functions that require standardization,
such as real-time counterparty credit
risk calculation, might never catch up
with the risks being taken. Legislators
and regulators seeking to tame the financial markets must look at these
matters systematically. Mandatory
standardization of data exchange formats based on emerging schemes (for
example, Financial product Markup
Language, FpML) might have to be developed for different asset classes so
that a common understanding of offerings and risks is possible with sufficient speed to accompany financial
product offerings.
At present, financial firms cannot assess risk exposure in real time. They collect the necessary data and do the math
during nighttime batch processing operations that can last hours. It would be
a huge improvement if there were nothing more than systems to support initial heuristic risk assessment, but this
might not be enough to avoid problems
such as those of 2008. It might be necessary to slow transactions down until
risk assessment can occur at the same
speed the transactions occur.
Former chairman of the U.S. Federal Reserve Alan Greenspan has said
that bank risk managers are more
knowledgeable than government
bank regulators, and that regulators
cannot “lean against the wind” to
dampen economic swings. This might
be correct, but bank risk managers
need the right systems to do their jobs.
The I T systems used to support assessment of counterparty credit risk are
not as mature as transaction systems,
especially for integrated assessment
of operational, credit, and market
risks. Individual desks at an institu-
it might be necessary
to slow transactions
down until risk
assessment can
occur at the
same speed the
transactions occur.
tion might do a good job at evaluating
risks for their department, but they
lack the global enterprise perspective
that is vital to a global financial industry. This must change. Financial institutions are looking for improvements
to data management, risk evaluation
algorithms, and simulation systems,
not because they are forced to do so
by regulation, but because these are
essential to their survival. The crisis
has shaken confidence in the ability of
IT systems to support the risk assessment at the heart of financial system
operation, regulation, and market
transparency. However, only by improving IT systems to support such
assessment can the global financial
industry move forward.
Perhaps financial regulators should
not lean against the wind, but improved IT systems might play a vital role
by helping bank risk managers do their
jobs more effectively. IT professionals,
working closely with colleagues from
other business departments, can create
industrywide, canonical data exchange
standards to help with management of
risk by improving data quality across organizations and borders. In this way, IT
might lean against the wind of threats
to global financial markets by enabling
mature and embedded analytics that
must influence decisions in financial
institutions. Pulling the plug was a poor
response to the crisis of 2008; the next
time it might not work at all.
Roman Beck ( rbeck@wiwi.uni-frankfurt.de) is an assistant
professor with the e-finance laboratory in the department
for economics and business administration at goethe
university frankfurt, germany.