SAP Financial Excellence

Cut SAP® Application Costs – Even those that can’t be seen

Carol Kadet — Mon, 22 Apr 2013 19:41:26 GMT

Sometimes we do things for one reason and not only get the desired results, but acquire additional results somewhere else as well. An example is converting paper documents to an electronic format in support of green initiatives. Paper is indeed reduced, by those electronic also aid in minimizing lost documents, speeding up and enabling automated work flows, and generally completing the process faster.

Here are 4 more actions from which you can derive multiple benefits:

“Smart” data archiving and data volume management can dramatically reduce storage costs and boost system speeds
Improving audit efficiency by automatically performing tasks that previously were manual saves money
Decommissioning legacy systems minimizes support costs and mitigates legal risks, too
Automating SAP business processes such as accounts payable and accounts receivable tracks the process and provides visibility throughout which can also lead to better decisions and add to your bottom line

These hidden opportunities for cost reduction are just below the surface. Technology can help achieve business objectives In many ways that were previously ignored.

Collection Management – A Challenge

Sachin Chavan — Tue, 08 Jan 2013 22:53:13 GMT

Many of my clients facing issues due to increased open AR items. Companies are using different methods for a good cash flow but there are still questions out there that are there a full proof mechanism to get rid of this issue?

I see different expectations from the market, as a Revenue Management consultant one has to satisfy the client needs.

Turn back and look around different requirements coming from business –

How can I make sure all customers received open item notification
When AR Rep calls customer for outstanding amount is there any way AR Rep can also refer any open invoice coming due in next n days
There are customers in market who promises for payment but never paid according to promise is there any way to tag such customers?

Many companies used different method right from paper, fax to phone communication for collection management, but they are realizing that still something is missing in the process for a better cash flow.

There are some companies which take decision very quickly and make informed credit decision to reduce bad debt but question is that these are precautions we are taking for such kind of customers; our challenge on open receivables still remains the same.

I have seen some situations where good customers even defaulting, this is the case where huge number of invoices getting generated and electronically communicated to the customers, during the communication process either sender side or receiver side if anything fails and we do not have proper mechanism to track failure on time, this kind of situation arises. When collection agent calls customer that time agent realizes that customer don’t even have invoice at first place, now question is who is responsible for this outstanding account now?

SAP is putting all efforts to provide effective solution to this challenge via financial supply chain (FSCM). I wanted to highlight Collection management module which can provide all answers to open questions I mention earlier.

Now, I have answers to the questions will that help me in improving outstanding balance? Sure but there must be outlined way for collection agents and this can not be successful without proper support from complete channel.

what kind collection agent needs from entire channel ? think in this way – Companies are using all channel of communication for collection fax, print and phone but there are sales manages or sales rep who can put some effort and review .outstanding receivables during order receiving and they can remind customers this is your face to face channel of collection. What I am trying to reiterate here is back end end activity (Collection activity) should be visible to entire firm and front office (Customer service or sales team) should join hand with back office to make collection activity more effective.

SAP/Hackett webinar on Financial Shared Services

Joseph Pacor — Wed, 12 Dec 2012 22:28:03 GMT

Last week my colleague Bernhard Fischer took part in a webinar with the Hackett Group to discuss the latest market research about the best practices world-class companies have applied to maximize the performance of their Finance function through Shared Services. They also shared some of the amazing results they are achieving. This is all important stuff as CFOs look around for the next initiative to protect margins.

All you multi-taskers that were unable to attend the live event can now access the recording - please note: registration is required although it’s only your name and email that’s required. It is a very informative session about where shared services are today, and the future direction.

Link: https://www3.gotomeeting.com/register/273352150

The New Collections Approach: From the Back Office to the Front…and Beyond

Joseph Pacor — Fri, 05 Oct 2012 17:50:04 GMT

I recently had the opportunity to present and meet with many financial executives during the CFO Dimensions conference, held in Chicago on Sept 18^th. Directly taking the pulse of corporate finance is always fascinating, since no other forum provides the interaction and candor found within the cocktail reception and the ensuing full day of meetings. The particular area of interest for me was the topic of Receivables Management, and more specifically, trends within the Collections area. It was encouraging to find consensus among many regarding the direction of the new approaches for managing past due receivables, which was part of my presentation topic. So let’s look at some of these trends.

Companies are realizing that outdated ways of handling delinquent accounts have not been successful in this real-time world we live in. Progressive companies are no longer waiting for an invoice to become past due, but rather are sending out reminders prior to the payment date. Also, there has been a pervasive movement away from the Collections process as a back office boiler room operation to a more customer-engaging front office one. Embedding Collections within a Shared Services call center has helped to leverage economies of scale and the benefits of consolidating these efforts. Improved collection customer segmentation has also developed based upon algorithms which combine the largest amounts due, oldest items, credit limit excesses, broken promises-to-pay, and other variables which optimize the approach. Additionally, the education of the Field Reps regarding the importance of working capital and cash flow has altered the collection strategies. Many companies now tie the commission payments of the Sales Rep to the payment of the invoice…what better way to engage the Field in the collection process? And Field interaction has an added benefit within countries where telephone-based collections don’t fit from a cultural point of view. However, we must keep in mind that technology is a critical element for enabling these changes and let’s review what’s needed to be successful...

Firstly, the foundation of the Shared Service center is necessary for the most effective collections strategy. Today, according to a recent 2012 Aberdeen study*, 67% of the Leading companies surveyed are delivering accounts receivable within such a landscape. Next, application software is required for the optimized customer segmentation in order to manage the multiple variables which impact the prioritization of collection efforts. And it should be noted that this process is an iterative one which should periodically be assessed and fine-tuned for the best results. Also, enlisting your Field Reps (and providing incentives) to help improve the payment cycle requires arming them with mobile applications which provide real-time customer data in an easily understood format. They need to arrive at the customer location with all of the necessary account information on their hand-held device (iPhone, Android, iPad, etc) so that any invoice payment discussion is reliable, timely and fully documented. And this information needs to flow back from the mobile device to the source accounting systems in a real time manner as well, ideally updating cash and liquidity planning too. Now that’s how the collections world is moving from back office to the front…and beyond.

For more information about the SAP solutions supporting Receivables Management and the Collections process, please click here: SAP Receivables Management

* Source: Receivables Management for the Long Term: Balancing Collections and Customer Service, Aberdeen group, August 2012

Finance Shared Services: trends, best practices and the role of technology in sustaining success – a Hackett Group and SAP webinar

Joseph Pacor — Tue, 02 Oct 2012 16:50:37 GMT

Find out how to accelerate the transformation of your Finance function to a Shared Service.

Join this webinar to benefit from the latest market research from the Hackett Group, hear about best practices world-class companies have applied to maximize the performance of their Finance function through Shared Services – and the amazing results they are achieving.

Discover how SAP can help you unlock the technology promises and achieve the benefits of shared services for your financial processes through process optimization, workflow standardization and economies of scale.

Don’t miss this opportunity to pose questions to recognized thought leaders and give your Shared Services strategy a new and sustainable impulse.

Join us and find out:

· What are the reasons behind the increase and success of the Shared Services model in Finance

· How world-class Global Business Services organizations are now using Shared Services to support critical and strategic finance functions

· Key benefits world-class Global Business Services organizations are getting from Shared Services over time

· The key role of technology in driving Shared Services efficiency and effectiveness

· How to unlock previously untappable economies of scale with SAP Shared Service Framework

· What is next in Shared Services and how to anticipate the trends with SAP Infrastructure

and much more!

This FREE webinar will be on:

Tuesday, October 30, 2012,

10:00 AM - 11:00 AM ET

Register

http://www.ssonetwork.com/global-business-services/webinars/sap-on-finance-shared-services/&utm_source=processexcellencenetwork.com.com&utm_medium=IQ&utm_campaign=IQHomeListing&utm_term=webinar&mac=SSON_WBNR_Featured#register-form

Latest customer newsletter editions for Finance

Birgit Starmanns — Mon, 03 Sep 2012 17:55:12 GMT

Four months ago, we initiated an opt-in customer-facing newsletter! Each issue contains valuable information about SAP's portfolio for financial solutions, including SAP solutions for enterprise performance management; SAP solutions for governance, risk and compliance; and SAP ERP Financials. Read about finance best practices, relevant news and customer stories, and upcoming event details.

We have received very good feedback to date. Links to prior issues are below:

May issue: introduces the newsletter, announces SAP's leadership in Gartner's Magic Quadrant for Corporate Performance Management, highlights a benchmarking report on travel and expense management, and announces several new rapid-deployment solutions.
June issue: highlights recognition SAP has gained as market share leader in EPM, GRC and ERP, recaps the SAP Insider keynote, promotes thought leadership in the financial close and in shared services, and highlights new releases focusing on disclosure management and XBRL, and finance solutions on SAP HANA.
July issue: provides an overview of how the solutions across different portfolios complement each other for a complete, end-to-end finance solution. New releases and demos focus on travel management, shared services and receivables management.
August issue: focuses on mobility apps and their value proposition for a finance audience, including the release of two new finance mobile apps that provide for insight into departmental spend and analysis of net margin, and highlights a news feature of SAP’s CFO.

Each issue also highlights five customer successes, either through video or a published customer success story, as well as upcoming events and webinars that are relevant to a finance audience.

To receive future issues via e-mail, subscribe here: http://www.sap.com/finance-newsletter

Securing The Future And The Bottom Line With Data Management

Derek Klobucher — Thu, 09 Aug 2012 21:00:03 GMT

It’s increasingly expensive for big banks to maintain their size, especially while they face growing data management challenges, increased capital reserve requirements and regulatory surcharges.

Conventional wisdom used to hold that a bigger bank could better spread its risk. With more assets under its control, a big bank can diversify to the point of almost absolute security. Sounds pretty safe, but eroding confidence in too-big-to-fail institutions has upended this model.

Increasing public, government and regulatory pressure have driven a corresponding increase in capital reserve requirements. Two U.S. legislators on the Senate Banking Committee sent a letter to Federal Reserve Chairman Ben Bernanke on Monday advocating higher surcharges for systemically important financial institutions (SIFIs).

Managing data is expensive too. But not managing data correctly also has its price, as Knight Capital demonstrated last week, when it held about $7 billion in stocks as its software broke down.

If You Botch It, They Will Come

“The likely truth of the matter is that Knight had no idea how much it could lose if its trading went awry,” Peter Eavis wrote in The New York Times DealBook Tuesday, exploring the limits of what data can actually tell us today. “Predicting the losses from a rogue algorithm is like predicting the losses from a tornado that turns into a hurricane.”

And if you think the market hates uncertainty, the public has steadily lost patience with these scandals since the financial crisis began in 2008. It’s no surprise that last week’s debacle prompted the SEC to step in as well, with new proposals that would require trading firms to disclose system failures and test changes in computer code -- invariably increasing the cost of compliance.

“Greater capital, stronger rules ... [and] more liquidity” are key to a more robust financial industry, Bernanke said at a town hall meeting in the U.S. capital recently. Regulatory regimes such as Dodd-Frank and the Basel accords could provide greater transparency to the financial services industry, preventing future financial crises, according to the Fed head.

But the kind of transparency that Dodd-Frank, the Basel accords and other regimes offer to regulators is pie-in-the-sky. That’s because the large institutions cannot provide it for themselves.

Illusion of Transparency

Pressure on banks isn’t going away any time soon. One of electronic trading’s first black eyes was the Flash Crash of 2010. Now, in addition to Knight Capital’s incident last week, experts are looking at potential faults in the foreign exchange market, as well as possible software glitches on three exchanges.

Banks will have to become more efficient at managing unstructured data if they want to have a better picture of what’s happening within their domains -- and especially if they want to get regulators off their backs. But there are at least three obstacles to banks getting their act together, according to my fellow Trading & Risk Technology blogger Neil McGovern of SAP:

Executives are reluctant to allocate funds for the necessary technology.
Banks lack the viability to bring together all of their data together, including counterparty exposure.
Data management architectures take a long time to build.

And let’s face it: Patience is a virtue that too few possess.

It Ain’t Easy Being Big

Big banks face another hurdle to total transparency, aside from money, time and patience. As big banks acquire other institutions, especially other big institutions (e.g., JPMorgan Chase & Co.), they typically encounter problems integrating internal systems. Streamlining these systems can be a lot work.

This often requires breaking down silos, according to SAP’s McGovern. Tools to fix this include scalable data stores and better databases.

“A world in which technology, product strategy and business models evolve faster than language may be a poor place to apply regulation based on participant silos,” as ITG’s Ian Domowitz noted in TABB Group on Wednesday.

Look to the Future

The financial services industry must regulate itself, but for more than just satiating the prying eyes of regulators, politicians and angry voters. Individual institutions -- and colossal conglomerates -- must do so for their own sake.

With electronic trading systems, there is a lot of opportunity for error. But with so much at stake in the way of money, reputation and investor confidence, there is not a lot of room for error.

For four years, governments around the world have made it increasingly clear that there will be no more tax payer-funded bailouts. Spending the money and investing the time in effective data management and streamlining internal systems will help the bottom line and secure the future of financial services firms.

Obituary

I’ll end with a tribute to someone who thought a lot about the future. Former NYSE Chairman John J. Phelan Jr. brought computer technology to his exchange in the 1980s. He passed away on Saturday at the age of 81.

“After the 1987 crash, which shook investors’ confidence in financial markets, Mr. Phelan coolly resisted calls to close the exchange, fearing that it would breed further panic,” William Alden wrote in Phelan’s obituary on Monday. “He rang the closing bell himself.”

Related Articles:

“Two Senators Urge Raising Large-Bank Capital Demand” by Cheyenne Hopkins

“The Dread of the Unknown” by Peter Eavis

“SEC to Tighten Rules Following Knight Bailout” by Kara Scannell

CEP Basics Prime Traders for Real-Time Success

Derek Klobucher — Thu, 05 Jul 2012 15:33:03 GMT

“The deluge of information stemming from social media, mobile devices and machine-generated devices,” is a definition of Big Data cited by 18 percent of 154 C-level executives at international companies in a recent SAP-sponsored poll. More than half indicated that Big Data was either a colossal expansion of transaction data or new technologies addressing that volume.

Whether your firm is conducting sentiment analysis within the flood of social media, or looking for the nuggets of valuable information amongst the ever wider expanse of transaction data, Complex Event Processing (CEP) offers a rock-solid technological foundation. My fellow Trading & Risk Technology blogger Domenic Iannaccone gave a primer on CEP in his latest webcast.

Investment banks around the world are preparing for 2012’s bleak second half, according to a recent Financial Times article. And this is just the time for firms to invest in continuous insight, improved agility and easily deployable technology.

Flipping the Model

Traditional business intelligence solutions collect and consolidate data into warehouses, where it sits until users query and analyze it. This is a conventional way to backtest new models, but it can cost time and opportunity when trying to look at new data.

So CEP flips the model, storing the queries and letting data flow through them. Firms can rely on real-time data -- as opposed to historical data, which may not reflect conditions in the real-time trading environment.

High-level real-time use cases for CEP include:

Situation detection, or scanning live event streams for business critical situations
Automated response, constantly adjusting business processes
Stream transformation, turning raw data into actionable information

In his webcast, “Raise the Bar on Trade Execution with Real-time Liquidity Analytics,” Iannaccone discussed three of the benefits of CEP technology:

Analyzes events as they occur: Empowers you to respond immediately.
Develops applications quickly: Reduces your dependence on special programming.
Deploys non-intrusively: Adapts to your existing data models.

No Sinking Sand with CEP

Firms that do not install a solid CEP foundation risk being swept away by torrents of data, while their more tech-savvy competition stands firm. Seattle-based data software provider Quantia Analytics has one such groundbreaking (or ground-solidifying) solution, which relies on Sybase’s Event Stream Processor (ESP) as the platform for its turnkey market data enrichment service, TrueTick.

TrueTick helps users to drill down into real-time data, getting an instantaneous view of asymmetry via spider web-like charts (pictured left). Each arm represents a market (NASDAQ, BATS, etc.), and different colors indicate best price and ticks of additional spread.

“Where are your problem children?” asked Stephen Elston, Ph.D., managing director of Quantia during Iannaccone’s webcast. “In a small amount of screen real estate, you see the symbols that might involve some investigation -- some check that something really weird isn’t happening in the market right now.”

Graphically representing many symbols, TrueTick uses colors to indicate a stock’s situation relative to others. Hotter colors (pictured right, upper left) have the most asymmetry, while cooler colors (lower right) have the least. This helps users identify a potential problem.

No Contest

CEP technology updates the data every couple of minutes. Try using batch processing to compete against that in the market.

If you’re contemplating CEP technology implementation and would like to learn more, Iannaccone’s webcast is a good place to start. A recording is just became available here.

Related Articles:

“Raise the Bar on Trade Execution with Real-time Liquidity Analytics” by Domenic Iannaccone

“Big Data of Growing Importance to Small Businesses: SAP” by Nathan Eddy

“Banks Fear for Second Half as Deals Fall” by Daniel Schäfer in London and Tracy Alloway

Introducing 4 New SAP Flash Demos for Receivables Management and Shared Services for financials

Joseph Pacor — Thu, 28 Jun 2012 17:46:46 GMT

Introducing 4 new SAP Flash Demos for Receivables Management and Shared Services for financials. What better way to quickly (under 5 minutes) and effectively gain an understanding of the value of the financial solutions which help your organization Run Better? These demo videos are constructed based upon the ‘day-in-the-life’ approach to using SAP solutions. Real world scenarios of customers, suppliers, and other business partner interactions provide the background for these Flash Demos. Feel free to share and offer feedback directly to me (joseph.pacor@sap.com)

1. SAP Collections and Dispute Management (Part 1) Manage Collections: Learn how to effectively manage receivables, prioritize delinquent accounts, and gain an in-depth view of your past-due accounts
2. SAP Collections and Dispute Management (Part 2) Mange Disputes: Learn how to consolidate, manage and resolve customer disputes quickly and effectively
3. SAP Customer Financial Fact Sheet mobile app: Learn how to access pertinent financial customer information while on the road; the app helps to better negotiate with customers, drive down days sales outstanding, and provide faster customer service
4. SAP Shared Services and Receivables Management: Learn how SAP Shared Service Framework for financials and receivables management solutions can help increase service quality and improve collaboration with customers and suppliers.

Big Data Lays the Foundation for Business And Technology

Derek Klobucher — Tue, 26 Jun 2012 14:00:57 GMT

Authorities cannot regulate all of the features that unstructured data will offer, be they in the form of social media and other channels, regulators said at SIFMA Tech Expo 2012 last week. Yet “every firm will be under regulatory pressure to produce a defensible risk architecture by 2016,” as my fellow Trading & Risk Technology blogger Stuart Grant noted in April.

Unstructured data and other forms of Big Data are going to be around for a while. So capital markets firms face a choice: Make Big Data an excuse or an opportunity.

Solid as a Rock

Firms that wish to succeed must lay a new technology foundation to see themselves through the next 10, 15 even 20 years. It must feature an architecture that holds a wider range of information than before, bringing the user closer to data, allowing him or her to ask any question at any time via interactive dashboards, and executing with minimal latency.

Grant examined the notion of a Big Data project during a video presentation on Tuesday. “Challenging Big Data to Marry the Requirements of Business and Technology” discussed how to wed Big Data projects to trading, while avoiding high-tech pitfalls.

“Traditional architectures may be like building a house on sand,” Grant said. “At some point, the foundation will disappear.”

The video presentation is part of financial IT publication WatersTechnology’s first annual Big Data Online Summit 2012, going on now. The summit features industry experts in live video panel debates on how to address Big Data challenges, as well as case studies on the latest market developments and how to identify the potential value of Big Data.

Creating a Big Data infrastructure is neither cheap nor easy, and many firms don’t see the payoff. But they will when investigations into how firms use data to arrive at their conclusions become a day-to-day aspect of regulatory structure, according to Grant.

And firms will certainly see the payoff when competitors with solid Big Data foundations exploit Hadoop, in-database analytics, in-memory processing, sentiment analysis and other technologies to find valuable nuggets among torrents of streaming information.

Out of Excuses

To take part in the summit, visit Sybase’s virtual booth in the Exhibition Hall and view Grant’s video presentation, click here. There is also a networking lounge, exhibition hall and free resource library, as well as scheduled chats and Q&As with leading market participants.

Big Data offers an opportunity for firms to tie together their tactical initiatives for efficiency and a bigger future footprint. How do you intend to turn Big Data into an opportunity with no room for excuses?

Update (July 10, 2012)

A replay of Grant’s video presentation, “Challenging Big Data to Marry the Requirements of Business and Technology,” is available here.

Liquidity Risk, Unstructured Data and Stream Processing are Sybase Features at SIFMA Tech Expo 2012

Derek Klobucher — Tue, 19 Jun 2012 13:20:00 GMT

“How do you gain exposure to potential sources before performing detailed evaluation of the suitability of each?” Max Bowie asked Monday in Waters Technology. “For many years, SIFMA fulfilled this role.”

And SIFMA Tech Expos are still a venue in which data and technology vendors can get to know other players and meet new customers, Bowie noted.

This week’s SIFMA Tech Expo 2012 will also draw securities firms, banks and asset managers, as well as those engaged in data management and social media compliance. The whole thing kicks off Tuesday in Manhattan, and Sybase will be there to discuss risk aggregation, unstructured data analytics, seeking alpha with Big Data and more.

Let the Data Games Begin

Sybase’s Keith Wood will be among the experts and partners on hand. His demonstration, “The Hunt for Alpha,” will cover Sybase RAP -- The Trading Edition’s ability to process up to 3 million records per second without a proprietary database, as well as SAP HANA’s capacity to store raw tick data and create regular time series at user-defined intervals on the fly.

Liquidity risk analytics are among HANA’s internal user-defined features that Wood will exhibit. Wood, author of the risk aggregation cover story of Sybase’s Q3 2011 Financial Services Viewpoint, will also talk about HANA’s text analytics, which can process full-text news stories.

Media articles, sentiment analysis and additional forms of unstructured data have become priorities for the financial services industry, as well as other fields. Unstructured data gathered during the 2012 Olympics will contribute to safety this summer, as well as marketing and planning of future events.

“Authorities will be keeping track of social networks and the video feeds from the many CCTV cameras around the sport venues and the city for security purposes,” Sybase CTO Irfan Khan blogged last week. “There are reports that authorities will apply facial recognition technology to preempt trouble by identifying in advance known criminals from pickpockets to terrorists.”

Olympic officials and sponsors can evaluate successes and failures of the London games based on collected unstructured data, according to Khan. Analyzing tweets, status updates and the like about restrooms, vendors, wireless access and more will likely be a bonanza for planners of future games.

Pillars of the Developer Community

Back here in the present, adjacent to Wood at SIFMA Tech Expo 2012, two Sybase experts and a partner will demonstrate a new application on Sybase Aleri Event Stream Processor (ESP). “Develop Streaming Apps in a Flash” will explore the benefits of stream processing technology to future applications and the open aspect of an ESP customer community.

Sybase will also showcase third-party offerings that enhance the value of SAP/Sybase securities industries solutions. These include products and technology from key partners, such as Deloitte, Panopticon and Quantia Analytics.

“Sybase’s booth makes room for key partners among smaller vendors, to allow them to gain exposure through their relationship with Sybase, while smaller vendors ... are exhibiting side-by-side to show off a new partnership,” Waters Technology’s Bowie said. “It’s this spirit of partnership that should prevail around SIFMA.”

The SIFMA Tech Expo 2012 runs Tuesday and Wednesday at the Hilton New York.

Event-Risk Hedging and the Woes of Rebounding Stock

Derek Klobucher — Mon, 11 Jun 2012 15:30:20 GMT

Imagine how horrible it would be if Spain sorted its banking industry, and Greece generally got its act together. Wouldn’t it be awful if European stocks rebounded?

Investors who are negative on European equities would say so. And, naturally, they’re hedging.

“If your total portfolio is lined up for only one outcome, you may be wrong-footed,” Arthur Van Slooten, a strategist with Société Générale, told Reuters. So traders are trying to manage their event risk via options and variance swaps. Other strategies for hedging event risk include trading around values of commodities.

But these can be difficult to implement with real-time sensitivities, especially as news breaks. And these strategies do not take into account technological advantages available for event-risk hedging.

This Just In

Enter the Yale Center for Analytical Sciences’ Casey King and Michael Kane -- and their use case of news analytics for automated trading. Inspired by the Chernobyl nuclear disaster of 1989, King and Kane saw that hedging (against interest rates for fixed-income assets, in this case) was not enough.

Their solution is mixed-asset hedging, using a combination of treasuries and equity instruments to manage corporate bond risk. Treasuries serve as an interest rate hedge, while equitites are an event risk hedge.

King and Kane backtested their model with Dow Jones newsfeeds about the BP oil spill of 2010 and subsequent changes in share price, similar to the way they used data related to the Flash Crash (also of 2010) to backtest SEC circuit breakers.

“Our approach essentially was to develop a sector-by-sector lexicon,” Kane said during a recent Sybase-sponsored webcast. “It is essentially a set of words that encode some kind of disaster for a given sector or a given company.”

Almost six in 10 (59 percent) of market participants who invest in fixed income use mixed assets to hedge their positions, according to a survey of the webcast’s audience. The key to mixed asset hedging is to do it better than the competition.

Head of the Analytical Pack

In an age in which everyone receives the same market data, the advantage goes to the trader who processes fastest. Everyone gets the same unstructured data too, but the advantage here is in finding the best way to analyze text data.

“You must correlate it with other text data to create actionable information,” my fellow Trading & Risk Technology blogger Domenic Iannaccone told me after hosting last month’s webcast. “This is more of an analytic advantage than a speed advantage.”

Using unstructured data to gague market sentiment is gaining traction. This includes newsfeeds, blogs, electronic documents and, as I’ve mentioned before, Twitter. And social media’s growing influence on the market is increasingly well documented.

Nevetheless, sentiment is a small subset of text analysis. And more than half of the respondents (52 percent) to a poll during Sybase’s webcast were “interensted but unsure how to implement” news analytics in finance.

Complex Event Processiong (CEP) technology is a good place to start because it helps users separate the valuable information you want from the torrent of data that everyone else is getting, too. And CEP is well suited for mixed-asset hedging, according to YCAS’ King.

Everything Bad is Good Again

Even good news can be bad for traders, depending on their position. So whether or not Spain averts its banking crisis and Greece remains in the eurozone, some will win, and others will lose.

How much they lose will depend on how they’ve hedged.

“When you’ve come down this far,” European trader Justin Haque told Reuters, “few people are brave enough to put more shorts on.”

The Good and Bad of Devolving Into An Unruly Mess

Derek Klobucher — Wed, 06 Jun 2012 15:45:42 GMT

Another recession within the next year or two is possible -- and it could drive down the S&P 500 by 30 percent to 850 points, according to Barry Ritholtz during a discussion Tuesday on Bloomberg TV. “We’re in a secular bear market that began in 2000 and will run until whenever it ends ... sometime between Thursday and 2017,” said the FusionIQ CEO and columnist for The Washington Post.

Ritholtz knows something about financial crises. He literally wrote the book (pun intended) on the causes of the 2008 financial crisis, Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.

Among his book’s recommendations, Ritholtz advocates regulating derivatives like any other financial instruments; reforming ratings agencies; and restoring the Glass-Steagall Act. You’ll have a chance to ask him about all of that and more next week in midtown Manhattan at Sybase’s exclusive luncheon “Market Cycles, Economic History and Where We Are Today.”

Ritholtz will outline the current economic cycle as it relates to the last 50 years, and share his vision of the near future. He will also examine possible threats surrounding regulation and the economy.

“Banking has devolved into an unruly mess,” Ritholtz wrote in The Washington Post last week. “Safety and security are secondary to risk-taking and speculation.”

But it’s not all doom and gloom. Ritholtz will also discuss benefits of the current climate, and their potential impacts.

Click here to register for the luncheon at The Yale Club of New York City from noon to 2 p.m. on Tuesday, June 12.

And for what it’s worth, I hope the secular bear market ends on Thursday.

Available Now: SAP® Disclosure Management 10.0, Starter Kits for IFRS and U.S. GAAP

Stephane Neufcourt — Wed, 30 May 2012 16:30:00 GMT

SAP® Disclosure Management 10.0, Starter Kits for IFRS and U.S. GAAP

Streamline Compliance, Reduce Implementation Times

We are pleased to announce the availability of SAP® Disclosure Management, starter kits for U.S. GAAP and IFRS to accelerate the ‘last mile of finance’ and enable customers to quickly announce their financial results. The starter kits for U.S. GAAP and IFRS have been released in May 2012 and deliver on SAP’s commitment to provide pre-configured software in order to streamline compliance, reduce implementation times and decrease total cost of ownership.

More Information

Announcing the Availability of SAP Disclosure Management 10.0, Starter Kits for IFRS and U.S. GAAP

Sincerely,

Stephane Neufcourt

Director, SAP Enterprise Performance Management

The Right Kind of Risk Management

Derek Klobucher — Fri, 18 May 2012 13:22:16 GMT

“You should not put your own money at risk,” Rep. Barney Frank said to federally-insured banks Wednesday on CBS This Morning. “We now have a stronger argument for a Volcker Rule that says ‘No’ to a bank: ‘Your main job is lending and managing the money of your clients.’”

Frank’s argument got a shot in the arm last week when JPMorgan revealed that a set of trades aimed at hedging wound up costing the firm more than $2 billion.

The bungle may have also tipped the industry’s hand. A bank using its own money to hedge against losses would be permissible under the work-in-progress Volker Rule, but using that capital for what some have characterized as bad bets -- and even gambling -- as JPMorgan seems to have done, may have been a big part of plans to evade the nascent regulation.

“We are not trying to stop financial institutions from losing money; that’s their business,” Frank said. “We have a particular concern about banks [that] get federal deposit insurance.”

But what about those institutions whose losses aren’t federally insured? The ones that have to risk their own capital?

Shaping Reform

“In most financial institutions there are multiple dimensions to risk management; organizations need to protect themselves from volatilities in the market and threats posed by poor or inadequate internal process controls,” Sybase CTO Irfan Khan wrote in trading intelligence site ATMonitor. “While there’s no doubt that rigorous policies exist to create checks and balances that manage risk in new trading paradigms, in reality, the technologies we need to enforce these policies lag well behind our ambition.”

Validation of Kahn’s assertions has repeatedly splashed across the front page. Before JPMorgan this month, there was a rogue trader at UBS last year and the €4.9 billion trading fraud at Société Générale in 2008.

“The type of high-risk trading that these individuals participated in, primarily derivatives and futures, offers the enticement of high returns,” Khan said. “When done properly, risk control should nullify the temptation to take on excessive leverage.”

While JPMorgan was more adept at risk management than most, this colossal blunder could provoke unwanted intervention, as Gary Townsend, CEO of Chevy Chase-based Hill-Townsend Capital, noted on market watcher Seeking Alpha. This is an election year after all, and politicians have already indicated that the JPMorgan scandal could influence the final forms of Dodd-Frank and the Volcker Rule this summer.

Why Are We Here?

So it becomes a question of who should drive the capital markets reforms. The real trick is finding agreement in a world where people have different ideas of why we even have banks.

“We should expect banks to take risks,” Townsend wrote, contradicting the Volcker Rule’s core tenant. “It is why they exist.”

If the financial services industry wants the public and authorities to deem it trustworthy enough to govern itself, it must act responsibly; refrain from circumventing the spirit of regulations; and install the proper controls for the trading in question. Otherwise taxpayers, voters and regulators will take control.

Much Ado About Nothing?

The instigator in this may not see the worst of it.

“Regulators checked out JPMorgan just a couple of months ago, and found that the bank was doing fine,” securities and investment publication Wall Street & Technology wrote this week. “And if they were to go back in time and carry out those tests again, they would probably say the same thing.”

In short, this $2 billion hit won’t topple the giant with market capitalization around $135 billion. But it will bruise all of his neighbors.

Related Articles:

Barney Frank: Chance Now for Stronger Bank Rules by CBS News

Breaking Tradition by Irfan Khan

JPMorgan’s Hedging Losses Invite a Political Response by Gary Townsend

For Regulators, JP Morgan’s $2 Billion Loss Is Really Not A Big Deal by Melanie Rodier