Freddy Zainal, Risk Manager for Velocity Clearing, LLC, recently connected with Gate 39 CEO Shane Stiles at the FIA EXPO. Freddy shared the importance of real-time risk management, how that sector has evolved over the years. In addition, he explores how they use real-time reporting, user-defined scenarios, and risk analytics to pressure test portfolios.   

The Evolution of Risk Management
In decades past, risk managers worked “blind” because reporting only happened at market open or end of the day through batch systems, leaving blind spots in understanding where the risk was happening in portfolios. With the advancement of risk management solutions, managers can look at sector risk, concentration risk, VaR, and slide risk using real-time reporting.   

Multiple Parallel Systems: What Makes Velocity Clearing Different.
Other than rates and capital usage, investors want to know your house policy. For example, how much capital do I have to put up because of your risk terms? What differentiates us from other clearing firms is having multiple parallel systems and understanding the truth, dissecting the portfolio’s absolute risk, and doing it in real-time to create a hyper-responsive risk model.    

What is Velocity’s Relationship to its Clients?
We address risk first thing in the morning before the market opens, giving them the whole day to plan and facilitate risk-mitigating measures to keep you and your money safe.  Our focus is on different segments of the client bases that we manage—for example, hedge fund space, client brokerage, and day trading—having seasoned expertise on the various client silos we monitor is very important.   

How Does Velocity Look at Risk? 
The biggest thing is developing a risk culture all the way down to the sales cycle. Understanding the client and how they trade and the strategy and the systems on which they trade is very important to us. Once on board, we look at the following:  

  • Standard deviation   
  • Concentrations   
  • Sectors  

Are they too concentrated on pharmaceuticals and technology? We shock volatility up and down and take correlation risk. We want to know that your portfolio is pressure tested. Having that real-time information in front of our risk analysts helps insulate from idiosyncratic events that can happen intraday.   


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