Canadian Imperial Swears by Investment Analysis Tool
Pesek, William, Jr., American Banker
NOTHING IRKS A BANK trader more than a missed opportunity.
It's for this reason that many financial institutions are turning to high-tech gadgets to give their traders the insight needed to catch those opportunities, reduce risk and increase overall profits.
Three months ago, Canadian Imperial Bank of Commerce was looking for an edge in the markets. Bogged down by a hefty load of nonperforming loans and a sharp decline in net income last year, the $106 billion-asset bank earmarked its trading operation as part of a plan to shore up profitability.
"We wanted to improve our chances for success in the markets," said Chris Heasman, vice president in charge of the Toronto-based bank's New York options application group. "The best way to go, we found, was to give the traders the tools and know-how they needed to do their jobs better."
To sharpen its traders' edge, the bank installed software from Logical Information Machines Inc., Chicago, to lessen risk oxposure and give traders more information about market movements as they occur. The package, called Market Information Machine (MIM), performs historical market analysis on bonds, equities, commodities, and currencies in seconds.
The system combines a powerful desktop computer with an extremely fast method of sorting through data bases of current and historical market data in search of patterns and correlations. Once a pattern is discovered, Canadian Imperial can use it to increase the chances of making a profitable trade.
"It's a decision-support tool we're using to identify opportunities to make a profit and to test our assumptions," Mr. Heasman said.
What the system is not is a crystal ball that can guarantee every trade is a winner. But industry experts agree that systems like MIM can provide one-stop shopping for investors looking to make sense of mountains of data as markets gyrate. Hence, banks are beginning to pay a lot more attention to them.
"Recent events in the markets have put a spotlight on systems aimed at saving time and reducing risk by providing people with a historical perspective on things," said Stan D. Monsowitz, director of financial services consulting at Cap Gemini America.
One such event was when speculative investors trashed the European currencies last August, catching many banks off guard. "The problem was that at any moment, no one knew what would happen next. A good historical data base would've come in real handy," said Mr. Monsowitz.
The problem, he added, is one of inexperience and the all-too-obvious fact that, when it comes to real-time trading, anything goes. "That's why tools that give people access to market history are so important," Mr. Monsowitz said.
Traders at Canadian Imperial are normally not based on on-the-fly decisions. Instead, Mr. Heasman noted, dealers prefer to look at how markets performed in the past under certain conditions, as an aid to formulating trading strategies. Now the traders use MIM to test out their own ideas, as well as rumors heard around the market, and devise possible traders before actually putting any of the bank's money on the line.
Besides building trading confidence, the software has saved Canadian Imperial a considerable amount of time that used to be spent on market research, Mr. Heasman said.
But he admitted that better access to research is only part of the equation. "The software helps safeguard against missed or faulty trades by getting us out of the library," he said. "It also aids us in making sure deals are started on the correct footing."
Research that used to take CIBC hours or days now takes mere seconds. Mr. Heasman said simple and complex questions concerning seasonal tendencies, odds, pattern recognition, as well as the interplay of technical and fundamental factors, are now a cinch with the MIM system.
"We have timely access to whole libraries of historical data bases, and that of course leads to considerable cost savings," Mr. …