DBS Treasury & Markets Group COO talks about innovation in risk and post trade with robotics and cloud technology

Adapting your trading to today’s risk - DBS Treasury & Markets Managing Director & Group COO, Sam Ahmed talks about innovation in risk and post trade with robotics and cloud technology.

We invited Sam Ahmed, DBS Treasury & Markets Group COO to the hot seat this week. Sam is directly responsible for Business Management Support, Operational Risk, Trading and Sales Desk Support, Project Management, Business Planning and New Products teams across the APAC region in his role as COO of DBS Treasury & Markets.

With over 26 years of global markets experience with some of the largest largest banks globally, including Lehman Brothers, Merrill Lynch and Citi - Sam has played an instrumental role in building derivatives and capital markets businesses using the latest transformation and innovative technologies on the market.

In this interview, we uncover Sam’s perspective on how DBS have adapted their Trading, Risk and Operations in response to the uncertainty we see in today’s global markets. We discuss adapting the trading desk to Robotics and Machine Learning technologies and the differences between running real-time risk solutions on low latency connectivity through the co-location of servers versus cloud solutions.

There was news recently that DBS is now a direct clearing member of London Clearing House, the largest derivatives CCP in the world.  What was the decision in becoming a member now?

We have been aggressively growing our Treasury and Markets business over the past 5 years with a revenue growth of 13% (CAGR) which exceeds the industry benchmark of 6%. Over the past 3 years, we made significant gains in our FICC business with revenues up from SGD2.2 billion in 2019 to SGD3.2 billion in 2021. The growth in revenues and volumes validated our position as a major participant in global markets in the region and justified our initiative to join LCH as the first direct member in South East Asia.

How do you feel this membership is significant in terms of Singapore’s role in global markets?

One of the key drivers for the membership was our request to LCH to allow the use of Singapore government bonds (SGS) as eligible collateral for LCH. We lobbied for this over the past 12 months and negotiated on various terms such as haircuts and concentration limits. The acceptance of SGS by the world’s largest derivatives clearer is a significant development for Singapore as it has the potential for the development of secondary market for SGS amongst those global institutions who may wish to have alternatives to just using USD cash and treasuries. This could well translate into a secondary repo or financing market for SGS.

Your topic is about adaption. How are you adapting your Trading, Risk and Operations to the risk we see in today’s global markets?

The environment we’re in is characterised by uncertainty which has come about due to various geo political factors namely fear of a prolonged or expanded conflict in Europe along heightened tensions in Asia particularly the South China seas. Typically global tensions contribute to a fragmentation on a geo political level which is made more challenging with supply chain disruptions, protectionist trade policies and sanctions.

On the markets side, the Fed’s determination to bring inflation below 2% with tightening monetary policy despite global macro-economic challenges are causing central banks in Europe and Asia to follow suit or risk currency devaluation. In spite of the Fed’s hawkish stance, we are still seeing a lot of market participants who are positioning for an impending global recession as expressed by the inversion in the USD yield curve.

In the environment described above, the adaption we are referring to is related to capturing risk real time across market, liquidity, operational and credit risk. Legacy practices such as running overnight batch reports for managing risks the next day will have to be overhauled. An example of this was evident earlier this year with the start of the Russia Ukraine conflict where we saw the use of extensive sanctions policies and this was very challenging for all the banks. One of the solutions we are building towards moving to real time risk management is to ensure sanctioned counterparties or underlying assets are caught on a pre trade level before a trader can execute on them. Another example is the volatility we experienced in the commodities market this year. We need to be in a position not only to perform intraday margin calls as and when needed but also undertake real time stress tests and scenario analysis to assess for example, “what would happen to client exposures if the market went down another 10%?” or “how much do we increase the haircut on their collateral if vols went up by x%?”

Does the ability to run such real time risk solutions depend on low latency connectivity through co-location of servers or would you say cloud solutions are more attractive. What is your view on this?

Colocation of servers is the right approach for trading desks reliant on low latency market making and execution on an exchange. However, most of our business in Treasury and Markets is OTC and as such the priority is to be able to perform computation across a large amount of data in a real time environment. Some of our traders are actually uploading data to various libraries hosted on cloud to perform complex computations after which they are able to pull data back to their own systems almost instantly. I think cloud solutions have the scalability needed to provide trading desks unlimited resources at every life cycle of a trade through the various libraries that offer risk, post trade, margining and performance attribution computations. We are still in the early days of cloud computing so dependency on the internet, third party providers and security is still being debated but I really believe the future of trading will be about optimally having multiple solutions deployed in cloud and a ‘pay as you use’ model.

What does adapting your trading desk to newer technologies such as Robotics and Machine Learning mean to you? 

As COVID started in early 2020, we accelerated our digitalisation and innovation initiatives to improve efficiencies and competitiveness amidst evolving market conditions. I remember early on during the pandemic we asked ourselves a question during one of the management meetings: Could we still operate a dealing room even if there was no one in it?”

Over the next few months, we developed ‘algorithmic trading’ which was the ability for solutions to use algos to source the best two way prices in the market. We developed “Hyper personalisation” which through the use of data allowed for our solution to understand clients’ needs along with what and how they trade.
We are also developing robotics and machine learning for our middle office teams. Through the use of NLP (natural language processing) and Machine Learning, we are getting the robotic solution to read emails sent by the trading desks to our middle office teams, understand them and then mimic what the recipient would do, which in time trains the robotic solution to answer and execute the emails themselves.

This is all very fascinating. We look forward to hearing more of it at our event. Final question, what do you find most valuable about being a part of Fixed Income Leader’s Summit Asia and what will you be sharing at the event?

I have attended and have been speaking at the Fixed Income Leaders Summit Asia since 2016 and in my view, it is one of the top financial markets conferences in Asia. The content is very progressive and the invited speakers are carefully screened to ensure they do justice to the content and keep the sessions interesting.