Risk Management Systems, Toolkits Highlight FIA Expo; Expo Becomes A Must For Information Vendors

When the Futures Industry Association held its first Expo in Chicago a few years ago, many questioned the need for a trade show. The FIA convention held every March in Boca Raton, Fla. already featured vendor exhibits and some expressed doubts that the industry could support two annual events.

As the Expo has grown, the number of booths at the FIA convention has dwindled. In fact, there may be room for just one futures trade show in the U.S. But the vendors appear to be backing the Expo -- much to the chagrin of those who prefer Boca Raton in March to Chicago in October.

The mood at this year's Expo was a bit more subdued than at last year's show, which was held a few days before the stock market crash. Chicago's futures markets have spent the last year playing defense, trying to counteract accusations that they were responsible for the abrupt change in equity values.

The decline in stock index futures and options volume has led to cutbacks at exchanges and their member firms. Like their brethren in the securities industry, futures brokers and traders are generally taking a cautious approach toward technology expenditures.

But unlike stocks, futures are a zero sum game. So for every losing contract at the close of business on Oct. 19, 1987, there was a corresponding winner. Assuming they haven't been wrong about the market since then, at least a few traders in Chicago have money to spend.

With a daily mark-to-market system where money from losing contracts is paid to winning contracts, Chicago is far ahead of New York when it comes to real-time risk management. Nevertheless, there's still room for improvement in assessing the risk involved in options on futures and intermarket positions involving futures, options and the underlying instrument.

The need for better risk management has not escaped the vendors, and at least two software firms at the Expo were offering products designed to meet this need.

Systems Development Corp. of Chicago demonstrated SDC Risk, a risk management system for options on futures that runs on networked microcomputers. After data is manually entered or downloaded from a mainframe, SDC Risk provides current position, risk, price and volatility information, which can be accessed using a personal computer and a modem.

SDC Risk's firm risk module analyzes a firm's exposure by commodity or individual and calculates profit and loss figures, equivalent number of futures contracts, gamma, theta and vega for each options position based on a range of underlying futures prices. SDC Risk is used by Saul Stone and Company and USA Trading Co.

XCaliber Trading Systems Inc. of Chicago displayed Position Manager, options risk analysis software that runs on the IBM PS/2 and high-performance workstations from Apollo and Sun. Position Manager computes theoretical values, delta, gammas and thetas using a formula based on the Cox-Rubenstein options pricing model.

Risk management tools allow a position to be evaluated using a variety of assumptions. Position Manager provides reports to analyze a firm's exposure to a given symbol or a group of related symbols across a number of accounts.

Besides risk management software, applications toolkits that run on Unix-based workstations were also well represented at the FIA Expo.

MarketView Software Inc. of St. Charles, Ill. showed Horizon, which allows users to develop custom applications using real-time data that can be distributed on a LAN.

Horizon provides program-level access to disparate sources of real- time data by converting them into a "normalized" format. It uses PC/AT bus communications coprocessor cards to improve the efficiency of processing multiple data sources. According to MarketView, this approach eliminates many of the problems with using UNIX for real- time applications.

After the information is normalized, it is distributed to end-user applications on either an Ethernet or Token Ring LAN using TCP/IP protocols. Application program interface toolkits are available to handle news display and archiving, graphics, customer screens, baskets and windowing.

PC Quote Inc. demonstrated a real-time graphical spreadsheet that it calls "The Ultimate Financial Toolkit." The software, which runs on a Sun 3/60 workstation, was developed by FinTech Inc. of Chicago. John Wolfe, president of FinTech, was formerly with O'Connor and Associates, the options trading firm.

The environment for the Ultimate Financial Toolkit consists of Sun NeWS Windows presentation management software, Sun NFS networking software, an Ethernet LAN and the TCP/IP communications protocol.

All graphs are updated using data from PC Quote. Up to eight graphs can be presented on one spreadsheet. A graph can be turned into an icon and will continue to update in real time.

Wolfe says the real-time graphical spreadsheet provides a flexible environment for firms to build their own applications. "It allows them to represent data any way they want," he says.