The measurement of market risk — the risk of losses in positions arising from movements in market variables such as interest rates, foreign exchange rates, asset prices, and volatility — is a complex big data and computational challenge for all financial institutions. Measuring it effectively requires the modeling and maintenance of hundreds of thousands of market data points and scenarios that are then used to forecast risks into the future.
In response to the 2007-2008 financial crisis, HSBC, along with most other financial institutions, had to quickly scale up its IT and analytics capabilities to meet regulatory requirements. While the setup we built at the time served the bank well for over 10 years, it was not capable of meeting future regulatory and business demands.
In January 2021, HSBC embarked on a modernization program of its market-risk management IT infrastructure. The program had at its core the modernization of the data-management and scenario-generation infrastructure, critical to the measurement of market risk.
We made the strategic decision to build HSBC Strategic Time Series and Risk Factors, or STAR, a scalable platform to manage the data lifecycle and generate scenarios used for market risk computations. The solution was built natively on Google Cloud.
The platform is now live and used globally across the Traded Risk department at HSBC. The scale and flexibility of working in the cloud allows HSBC not only to offer faster, more advanced risk-management solutions, but to be more agile in adapting to incoming regulatory changes. Compute capacity has increased by 10x since implementation, while our costs have been reduced by 50-100%.
STAR is now a key pillar in enhancing HSBC’s dynamic risk-management capabilities for the future. Its modern architecture allows us to meet higher regulatory and business standards in a simple, cheaper and faster way.
A STAR is born
We deployed a small team to build a 100% cloud-native platform and microservices architecture that consumes market data and standardizes it to facilitate the generation of all manner of scenarios. Pricing engines can then access the data via a Cloud SQL database.
STAR provides API-based data access to valuation engines for trade valuations and end users in a much simpler way, especially compared to legacy infrastructure. Users are empowered to self-serve datasets in STAR whenever they need them, rather than making ad-hoc requests for large datasets via files, decreasing both time required and overall margin for error.
Pricing engines can access STAR’s risk scenarios on a daily basis via STAR’s APIs. Prior to working with Google Cloud, data generation and provisions for market-risk computations used to take hours. They now take just a few minutes. STAR simplifies and standardizes business processes significantly by providing scenarios to all valuation engines across asset classes, regulatory jurisdictions, and geographic locations.
Meeting customer needs at 10x the speed
Working with Google Cloud on this project was a natural choice, and our strategic partnership has played an important role in STAR’s success. Today, STAR completes over 4 billion calculations a day, 10 times faster than our previous solution. The API ecosystem we created together with Google Cloud makes data access simple and easy for everyone, enabling us to address new regulations and customer needs at higher speed.
Developing and implementing STAR with Google Cloud has enabled HSBC to react more quickly to market events and will make the adoption of future regulatory requirements cheaper and more efficient. The simplified data models and easy scenario-generation process enable HSBC to adapt to the future and scale up, improve project speeds, and decrease both time-to-market and overall costs. The STAR project was awarded Best RegTech Project at the FSTech Awards 2023.
Currently, HSBC has more than 2,000 Google Cloud projects worldwide, and over 200 live services using cloud technology. Of those projects, the STAR platform represents our commitment to engineering excellence, agility, and collaboration. The platform not only delivers sophisticated risk-management capabilities, but future-proofs HSBC by allowing our business to evolve to meet increasingly complex industry needs for years to come.
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