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Strategies for Adapting to Unusual and Dynamic Markets – June 2023 ActiveViam Connect London


Our CEO, Chris Watts, was lucky enough to be invited to speak at ActiveViam’s annual Connect London Event on June 22nd, 2023.


Connect London is a highly regarded industry event that brings together a range of FinTech and Capital Markets firms to discuss the most relevant trends and challenges within financial markets.


The event was super polished throughout, covering critical areas such as regulatory issues, market risk and, on Chris’ panel, the very relevant theme of ‘Strategies for Adapting to Unusual and Dynamic Markets’.


With plenty of invaluable knowledge on show, it’s only fair that we share it with you all…


Check out below for our five key takeaways from the ‘Strategies for Adapting to Unusual and Dynamic Markets’ panel.


1.      Proactive Risk Approach

It's crucial to adopt a proactive approach to risk. Flexibility and adaptability to new products and stress scenarios are vital for success. Taking action to ensure that stress scenarios are mitigated against in advance will minimise their impact. Risk Management Frameworks should proactively identify sources of vulnerabilities and prioritise remediation where services or functions could be compromised in periods of heightened market volatility.


2.     Robust Risk Management Systems through Stress Testing  

Having capable systems that can handle large amounts of data and perform scenario analysis, including stress testing, is becoming increasingly important in such a dynamic environment. Stress tests should cover operational and liquidity-based considerations. From an operational perspective, organisations need to ensure they are capable of delivering important business services in times of stress. From a liquidity perspective, having alternative sources of liquidity is key to ensure stressed market events do not have an adverse impact on an organisation's ability to meet its liquidity obligations.


3.     Global Regulatory Challenges

Responding to market rules and regulations as a global organization poses challenges. Collaboration between institutions and regulators is essential for navigating complexity effectively. Furthermore, global standard setters including FSB and BIS, along with local regulators, continue to focus on improving the overall resilience of the financial system. Specifically, in the UK, in response to the Gilt Crisis, the Pensions Regulator published guidelines outlining collateral buffers that LDI funds are recommended to hold to ensure sufficient assets are available to meet margin obligations. There are two elements to consider in the buffer: 1) Having sufficient liquidity to manage day-to-day volatility in the market (an operational buffer) and 2) Additional liquidity to provide resilience during severe market stress (a market stress buffer).


4.    Holistic View of Risk 

Gaining a holistic view of risk across multiple regions is crucial. Integrating disparate risk platforms and leveraging cloud-based solutions can enable a comprehensive understanding of risks. In addition, having the ability to identify operational and financial vulnerabilities across the enterprise is key to improving overall resilience. Building enterprise resilience requires a holistic view of liquidity, operational, and other key risks to ensure that organisations can withstand severe but plausible stressed markets. Such risks should be captured in the risk management framework for ongoing monitoring and management.


 5.     Embracing Volatility

Volatility should be embraced rather than feared. It can bring opportunities as well as challenges. Building resilient systems and addressing systemic health are key considerations. Chris talked about Black Swan Events occurring more regularly: "Grey" Swan Events, if you will. Given the next market stress will not replicate the previous one, organisations need to ensure their resilience is dynamic and can adapt to multiple stressed events. There is no one-size-fits-all. Focusing on dynamic stress testing and having a robust crisis management framework will ensure organisations are prepared to withstand heightened volatility for prolonged periods.


Here at Tonic, we offer expertise-led operational resilience and market risk services that will help guide your firm through the volatile markets. Please reach out to info@thetonicconsultancy.com to speak to us about our related services, or if you fancy a general chat.


Speaking more openly about the evolving risk landscape is vital for the capital markets community. Let's continue to explore innovative solutions and collaborate to enhance the practices.


Stay tuned for more Tonic thought leadership pieces on resilience in Capital Markets.


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