Hello Walter. You are the newest member of the Board of ActiveViam, can you please introduce yourself for the members of our community who don’t know you?
Sure, I was born in Argentina but later came to the US and spent more than 25 years working at Wells Fargo. During my time there, I co-headed the Corporate and Investment Banking division and headed up the capital markets and sales and trading businesses, until I retired in March 2021. I accepted the offer to join the board at ActiveViam when I realized that Atoti was capable of solving many of the issues that had been headaches for me during my career.
How did you see finance, trading and risk management change over the past 15 years?
The big crisis of 2008 was really a turning point, things everywhere were fundamentally changed. In many ways, it marked the true advent of the digital age in banking. Before then, a lot of business was still done on paper and over the phone, and traders often just had an intuitive sense of their positions and risk based on quick manual calculations. Afterwards, this all changed. The regulators progressively imposed stricter rules on risk reporting and auditing, with managers receiving daily calls from regulatory bodies and having to provide answers live over the phone. Waiting for the next day to reconcile and provide the figures simply didn’t work anymore.
At the same time, finance became much more decentralized and trading became more automated. AI and algos can make markets on their own. Technology became much more embedded and more and more systems were added which led to more and more data. Today, your way of reaching markets is across a number of venues. The result was an explosion in the volumes of trades, and therefore in the amount of data to analyze, with more pressure to be accurate and precise. You had to be able to project the impact of any portfolio change on your risk before proceeding with your next move. There used to be a saying that in a bull market you’d go up the ladder one step at a time and in a bear market you’d jump off the ladder – now it’s with both that you jump off. You have to quickly pull vast amounts of complex data from multiple systems – intraday and live risk reporting has become a mission critical requirement for any market making business.
What are the main challenges today in the industry when it comes to analytics?
The main challenge I see is the proliferation of too many different systems across desks and offices that simply don’t talk to each other. Every desk wants the best system, but over time it creates several problems.
The first problem is that systems that were compatible at first drift apart with every tweak and customization designed to make them more optimized for their specific task. Gradually, the disparate systems lose compatibility while organizations accumulate a huge technical debt and have no choice but to invest more and more to keep critical systems working.
The second problem, which is in part a consequence of the first, is that “shadow IT” is still creeping up everywhere. Shadow IT means all the analysis and calculations that happen outside of a proper, dedicated platform, and therefore also outside the auditing chain, typically in the form of Excel spreadsheets.
As a former head of business, I cannot overstate the risks associated with having those spreadsheets proliferating across multiple desks throughout the firm. They are prone to all kinds of human errors, they lack any formal process for traceability and auditing, and some of them are so complex that they would definitely qualify as trading models… and all models MUST be validated both internally and by regulators. This is not scalable nor deployable. I think if heads of business or risk managers today took a full accounting of the true scope of shadow IT in their organizations, and the legal and financial liability it creates for them, they’d be horrified.
How can those problems be resolved?
As I said before, keeping all of the legacy systems up to date is not sustainable in practice. Onboarding a new vendor can be daunting when it concerns so many systems and it can easily take years to complete. One thing I’m always wary of is IT mega-projects that promise to solve every problem in one fell swoop. The better approach, in my opinion, is to solve problems one at a time, start somewhere and then expand. Deploying a shared aggregation and analytics layer, for instance, is a good first step towards a deeper integration of the data needed for complete risk measurement, monitoring, and reporting.
Does this apply to the buy-side as well?
They definitely face the same issues of aggregation, analysis, and reporting, and some others that are specific to them. Big asset managers, for instance, often consolidate data from many smaller asset managers, and each of them have their own systems and data workflows. Their issues of reconciliation can be even more challenging than on the sell-side, since they may have to deal with multiple IT and analysis departments to get to the bottom of a data issue.
What are the tasks where IT and technology are the most valuable for traders and analysts?
For me, it would be anything that helps eliminate slow, manual tasks. At the front office, you have the PnL explain process that takes time away from the core business. At the middle office, you spend hours every day reconciling data, explaining weird outcomes, and even dealing with model results completely detached from reality. Any solution that speeds up that investigation and resolution, or even gets rid of it entirely, is money well spent.
Read the second part of this interview to find out more about Walter Dolhare‘s vision of the role of regulation in shaping workflows and IT decisions, and of the upcoming challenges for 2022: Interview with Walter Dolhare, Member of the Board, Part II
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