Many financial institutions were brought to the brink of collapse during the credit crunch and subsequent financial crisis, in part because of their inability to get an accurate picture of market risk. Now the global economy is in recovery, many financial institutions are focused on reducing their exposure to risky assets and increasing their risk management efforts. Accordingly, improvement of enterprise market risk systems is on the agenda at financial services firms of all sizes in many geographies.
Market penetration for enterprise market risk solutions is high at the larger sell-side firms. Tier-one institutions tend to have the most complex market risk technology and post-crisis they are seeking to replace their silo-based systems with integrated platforms. This approach allows large and complex firms to take a centralized approach to market risk management rather than depending on many systems located all over the world that are unable to deliver a transparent view of risk positions.
Growth in market risk technology expenditure is also on the rise at tier-two and -three financial institutions as well as buy-side firms. Regulatory pressure and demand from shareholders and ratings agencies for more risk metrics will influence US tier-two firms to spend more on market risk technology. In addition, buy-side firms, particularly hedge funds, are increasingly seeking out third-party market risk solutions.
Chartis forecasts the global spend for market risk software and technology will be $1.28 billion in 2010 growing to $1.8 billion in 2014, reflecting a compound annual growth rate of 8.9%. The Europe, Middle East and Africa (EMEA) region represents most of the spend this year, however, Asia Pacific will provide most of the growth over the next five years. In addition, tier-two firms are expected to spend $729 million on market risk IT this year, more than tier-one and -three firms combined.
Technology firms able to provide an integrated enterprise market risk platform will be positioned to succeed. Already some vendors are aiming to provide an end-to-end solution which addresses many of the complications caused by the traditional silo-based systems.
This report is new for 2010. It surveys the demand side of the market and includes information on industry trends and technology requirements. The report looks at what is driving market risk technology spend now and in the future. It also includes forecasts on market size by region and by type of financial institution. There is a case study of one international tier-one institution's efforts to replace its market risk system as well as a discussion of the current vendor landscape.
The research is designed to cover tier-one, tier-two, and tier-three banks, sell-side firms, buy-side firms, and insurance companies in North America, EMEA, and Asia Pacific.