This new (and so far only) NT-driven total risk package is developing a following.

By Andrew Webb

Panorama is SunGard Capital Markets' silver bullet for enterprise-wide risk management. Unlike many other offerings in the field, it is not an adaptation of an existing derivatives system but a de novo product four years in the making. Panorama has two very distinguishing characteristics: 1) It runs principally under Windows NT; and 2) It is designed to be completely nonintrusive to other systems already running front/back offices.

Several years ago the market manifested a wish for fully dedicated risk systems. In thinking up an appropriate response, Ian Green, the head of the Panorama development team, decided on a bold move at the outset: to opt for a Windows NT platform. The decision encountered a certain amount of resistance at first within SunGard-since NT was a very unproven entity-but with the benefit of hindsight it seems Green made a good call on the right operating system for his baby.

The three legs of the Panorama stool are Risk Database, Risk Executive and Risk Workstation. The last two will run only on NT, while the Database will run on either a UNIX/Sybase or Windows NT/SQL Server combination. The Executive plays the pivotal role of handling incoming trade events from other systems and passing them to the Database and Workstation. To do so, it translates these events into its native Devon Data Model format by providing a set of stored procedures for the external system to connect to. These in turn write the event to a storage area where they can be manipulated internally and validated before inclusion in the Database. The Executive is thus a software layer that prevents invalid data from being included in the Database, at the same time saving the user the effort of having to write directly to the Devon Data Model. The Database allows the user to build a risk archive for back-testing risk modeling and assumptions, while the Workstation provides a broad selection of analytical and reporting functions.

The Risk Executive is conceptually attractive from an implementation viewpoint. It has also given SunGard's development team an enormous amount of extra elbow room, since it allows them to use their own data model. The most obvious benefit of this is the quite extraordinary level of flexibility in Panorama, which largely springs from its ability to break deals down into their smallest component parts. "Data decomposition" might describe this process, but doesn't quite. It's more like "data disintegration." Deals can not only belong to many different portfolios simultaneously, they can also be split into their component cash flows. The user is not obliged to use just one curve when pricing deals; individual items can price off different curves. The portfolio concept really allows the risk manager to see every possible risk implication of a transaction. Because a deal can belong to numerous portfolios, one can quickly see its impact not only in different areas such as credit, basis or FX risk, but also at different levels within an organization, such as trader, department or division.

The "risk archive" concept directly addresses one of the most fundamental issues of risk management, to wit: It's all very well making risk assumptions now, but how valid have those assumptions been in the past? The ability to carry out detailed historical back-testing using the material archived in the Risk Database allows the user to check the robustness of these assumptions. There are, to be sure, some gaps in Panorama. The lack of facilities for mortgage-backed securities is probably the most obvious. As yet, path-dependent options are not covered either, though there are rumors that this gap is due to be plugged shortly.

Panorama is a robust solution that slots neatly into a gap in the market between the utilitarian and exotic approaches to risk management. The functionality and flexibility are undoubtedly impressive, but they are only a product of what is clearly the most striking feature, the architecture. By getting the foundations of Panorama dead right, SunGard have given themselves almost unlimited scope for future expansion.

Guenter Nerlich
Chief of Staff, Basler Kantonalbank, Basle, Switzerland

We chose Panorama because we wanted an integral solution for the front, back and middle office. Our main objective was to minimize project risk by reducing the number of different interfaces required, so SunGard's ability to provide a complete package was very important. In some ways we are not the typical customer, since ours is a completely new bank trading room-a comparatively rare event. In the end it was a near-easy decision, because Panorama has one of the best solutions available among the vendors we considered.

The fact that Panorama runs principally under Windows NT was also a significant consideration, though we will be running the Risk Database on a UNIX/Sybase platform. The system will be implemented in a completely new 55-position trading floor here in Basle that will go live on December 2, with completion scheduled for late February. The total investment is around Sf20 million.

The flexibility of the system is an attractive feature. We like the ability to build multiple portfolios and the possibility of expanding Panorama across all trading activities. We shall be using its capabilities to the full and will be making use of such things as the Custom House extensions. This was another important part of our buy decision.

Gregor Aminoff
Head of IT, Swedish National Debt Office, Stockholm, Sweden

The Swedish National Debt Office needs an integrated front, middle and back office system. We also plan to connect some of our specialized systems, such as our issuing and auction system. Deals will be entered through the Devon System in which we have made some enhancements. It will effectively provide us with a real-time link to Panorama. We had a number of small proprietary systems, which we wanted to leave for a number of reasons, that can be connected to Panorama.

When making the purchasing decision, we went for functionality first. Technical environment and cost were considered at a much later stage. The fact that Panorama runs under Windows NT definitely made the selection easier, as we already had it here. We didn't really want to go for UNIX on the front end. I think NT is a wise direction to go in the market, but we still put functionality first.

Panorama's setup and conceptualization is first rate. Because it is a replicated data base, you don't ever have to risk manipulating real data. There is no chance of asking silly SQL questions, killing the data base and getting bad performance for the traders, etc. It also has a lot of advanced analytical functions.

Quentin Storrs-Fox
American Express Bank

There are six aspects of Panorama that particularly appeal to me: the ability to capture transactional data from legacy systems; SunGard's concept of a portfolio; the integration of market valuation, market risk, credit risk and capital adequacy; source of change and risk archiving; analytics; and value-at-risk methodology.

Data capture. Dealing with legacy systems is, without doubt, one of the key challenges facing any institution implementing a risk management system. Panorama addresses this challenge through the robust Risk Executive with its open interface and the ability to enter transactional data into Panorama through Excel spreadsheets. Of course the user will have to preprocess data from legacy systems in order for the transaction to be accepted by the Risk Executive.

I like the fact that it is the original transaction-not a position or cash flow derived from the transaction or set of transactions-that is passed to the Panorama database. This is clearly an advantage for, say, a risk manager based in New York who has no access to legacy systems in other parts of the world. This means he can "drill down" to a particular transaction done in a particular country with a particular client.

Portfolios. A limitation in many existing systems is the need to assign a particular trade to a portfolio. This then forces people to look at exposure from only one standpoint, which may not be appropriate when assessing risk. Panorama neatly sidesteps this limitation by not assigning transactions to portfolios. Instead, all trades on the system are available to the user at all times, and portfolios are constructed by selecting trades according to specified criteria from the data base. These criteria (Selection Rules, in Panorama) can then be saved and are classified as "portfolios." As a result, a trade can reside in many portfolios, and the user can look at overall exposure from different standpoints.

The integration of market valuation, market risk, credit risk and capital adequacy. The limit capability within Panorama is impressive. Basically, any value calculated or reported in the system-be it notional, market value, VAR, delta, gamma and so on-can have a limit set against it at the transaction, trader, desk, counterparty, profit center, etc. Not only is it possible to make these formula-driven, but they are also reported in real time. Add to this the ability to define netting agreements in terms of parent, child, grandchild and guarantor (although I am not sure how this integrates with portfolio selection) and you have a potentially powerful credit risk system.

Source of change and risk archiving. Panorama allows the user to archive all market, position, valuation, volatility, correlation and calculated results data on a daily basis in what are called Risk Archives. SunGard's recommendation is that only one Risk Archive be saved each day-that is, the total portfolio. The only limitation to the number of Risk Archives that can be saved is available disk space on the server. It is then possible for the user to use the same selection rules for creating portfolios against the archives in order to generate multiple views (again, all of which can be saved).

Not only is this essential for back-testing, but SunGard have also added Source of Change functionality to this. In other words, Panorama will analyze, on a day-to-day basis (a weekly or monthly basis may also be selected), what caused the value of the portfolio to change. This includes changes due to new, canceled and amended trades, changes due to interest rates, FX rates and realized profit and loss, as well as a number of second-order factors.

Analytics. There are powerful analytics, not only in terms of instrument and portfolio valuation (including perfect and practical hedging) but also in terms of scenario analysis and stress testing. Again, like everything else in the system, scenario analyses and stress testing parameters can be saved for future use by the individual user. Additionally, proprietary pricing libraries can also be attached.

Value-at-risk methodology. The system currently offers a co-variance methodology. While this is offered by many other systems, Panorama gives the user not only an unlimited number of currencies and interest rates, but also multiple confidence level and holding periods, plus delta-gamma-vega analysis of all options. VAR can be calculated on any portfolio, which in Panorama means at the total institution level right down to an individual transaction or counterparty level. VAR limits can also be set at all these levels.

Conclusion. The system is impressive, the architecture robust and the approach to tackling enterprise-wide risk management a credit to the development team. It is quite clear, however, that this is a system that needs an experienced driver. Its very flexibility makes it a complex system to set up and use. For example, the ability to change a single factor in the correlation matrix-without regard to the consequences of doing so-could make it a dangerous tool in the hands of an amateur. Overall, this is a system that deserves serious consideration by any institution looking for a risk management solution.

For three years Quentin D. Storrs-Fox has been global risk manager for American Express Bank. He has been with the bank since 1984, and previously worked for the Trade Development Bank (London).

Since this review was written, American Express Bank has purchased Panorama.

George Haddad
Ernst & Young

A caveat is in order. To call this review a "test drive" of Panorama is unfair. It is more like looking at a new car in a showroom. A bona fide test would take several weeks, comparing the system against the competition with a full range of trades.

Stand-alone uniqueness. SunGard has created in Panorama a unique, stand-alone product that does not require connection to any other Devon or Renaissance product. Panorama is a result of an independent development project. Accordingly, important decisions regarding programming languages, platforms, data bases and analytics had to be made. Panorama is built using Visual C++, capitalizing on the "openness" that object-oriented systems bring.

With respect to platforms, Devon gambled and developed the core system to be run on Windows NT, and it is currently the only risk management system to run native on NT. This decision may prove to be a wise one with many institutions moving "back to the future" to high-powered PCs and to client-server/Internet environments and away from a workstation-only focus. Panorama's deal data base can either be Microsoft SQL running on Windows NT or Sybase running UNIX on a workstation.

Panorama uses the Devon Data Model, offering the Custom House module to facilitate the extension to proprietary models. Custom House is a software development kit for writing OLE (object-linking and embedding) calculation objects. These OLE calculation objects allow the system to communicate with other objects, such as a pricing model or a user defined yield curve. The object may even contain C code, which can allow for the "breaking down" and reuse of existing pricing models in legacy systems. Traders also have the ability to link to Panorama the spreadsheets that they rely on.

With respect to "firmwide VAR systems," some of the main issues are product coverage, integration/migration and what risk analyses are performed. Excepting mortgage-backed products, Panorama handles the majority of the vanilla and exotic products traded in the marketplace.

Legacy interfaces. Panorama addresses the integration aspect of firmwide risk with their Risk Executive module. The Risk Executive facilitates the integration of information from various systems to Panorama. SunGard feels that this module will reduce the amount of time to achieve interface with legacy systems. One component of the Risk Executive module assists in the mapping of data within an existing system to the format that Panorama is looking for. Another component monitors deals as they flow into the system and performs an "integrity check" to determine if the data falls within certain boundaries. The most seamless integration of data occurs where Panorama is connected to Devon Derivatives Systems, with Panorama updated "live" as new deals are entered into the trading system. Integrating multiplatform, multilocation non-Devon systems, however, creates a bigger challenge. SunGard believes this challenge can be overcome with integration teams from either or both the Panorama purchaser or consultants charged with focusing on IT and data migration/integration issues.

Potentially the Risk Executive Module's ability to access global data bases and update portfolios, including amendments, could be a solution to a lot of the integration, migration and aggregation issues associated with VAR.

Credit controls. In addition to performing market risk analysis, Panorama offers some Credit Risk "control" and regulatory reporting features. The system performs a variety of customer limit monitoring, with the ability to incorporate relationships between counterparties, guarantor and netting provisions. This limit monitoring can be performed in real time. There is, however, more to credit risk than limits and regulatory reporting. The ability to perform detailed credit analysis utilizing formulas that incorporate risk weightings with Monte Carlo, or some another simulation tool, is lacking in Panorama, though future releases could remedy this quickly thanks to Panorama's modularity.

In essence Panorama attempts to offer the strengths of a turnkey solution and an open object-oriented environment. The system sacrifices the "sexy GUI" for a more standard, easy-to-use Microsoft Excel spreadsheet look and feel. Panorama seems to be an easy system to use, which is an important characteristic for traders and risk managers alike.

George M. Haddad, a manager in Ernst & Young's Northeast Management Consulting Practice, previously was a manager of client services for C*ATS Software, and before that was a treasury officer at Chemical Bank, where he put in seven years in derivatives systems.

Ken Young
Technology Solutions Company

Risk Executive. The Risk Executive is the nerve center for all Panorama data integration and normalization. All contributing systems call the Risk Executive to invoke its procedures in order to populate the Risk Database. Specialized routines exist to perform all of the necessary inserts and updates to the data base for both trade and reference data (for example, add a deal, adjust a trade, add a counterparty). These routines can be invoked real-time or in batch mode depending on the source environment and the risk management requirements. However, no ability exists to extend or change the inbound data formats, or to update event procedures of the Risk Executive, without vendor assistance.

Risk Database. Risk Database was designed with advanced query and analysis capabilities in mind. This ability to dynamically select portfolio parameters is a key user requirement that is found in few risk management systems on the market today. Panorama extends dynamic portfolio selection by providing advanced filtering capabilities that allow for virtually any combination of numeric, descriptive or date fields. The Risk Workstation allows the combining of filtering rules and provides an intuitive display of results that are partitioned in a familiar spreadsheet format.

Within Panorama's Risk Archives, historical information concerning market rates, volatilities, portfolios and transactions is stored at the detailed portfolio level. This allows for a broad range of historical analysis (for example, VAR and RAROC). In addition, Panorama's "source of change" analysis allows the user to isolate the change agents of a portfolio and analyze only those items that contributed to the portfolio's change over some period defined by the user. The Risk Database tables can also be extended by the user. With Risk Executive, however, the limitations on extensibility would, in most cases, require a vendor change to populate a new field.

Risk Workstation. The Risk Workstation is the visual part of the system and appears friendly while offering a comprehensive set of analysis tools. A third-party graphic program is embedded seamlessly into Panorama and offers a host of graphical presentations of risk management data.

Considerable thought went into the design of the reference data setup module. Each user of the system can create a personal set of defaults for each product monitored by the system. Users also have the ability to create custom pricing rules and easily assign, or deny, other users access to the newly created rules. Scenario analysis is facilitated through the creation of scenario portfolios that can be adjusted to "what-if" market conditions and/or additional trade activity.

Conclusion. With this product SunGard has succeeded with all of the core components of risk management data integration, modeling/storage and presentation. Overall the product appears extremely usable and intuitive, suitable for its broad target audience of risk managers. It tackles many difficult data integration issues and provides a cornerstone of standardization for a top-down risk management solution.

Kenneth Young is a vice president at TSC with 11 years' background in fixed income and equity derivative products. At Bank of Boston he was project manager on a fixed income trading system, and previously worked on financial systems at Barnett Bank.

An enterprise-wide real-time risk management system that starts at seven figures. Available from: SunGard Capital Markets
560 Lexington Ave., 10th floor, New York, NY 10022
Tel: (212) 371-1116; Fax: (212) 371-1148

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