In an era of unpredictable market behavior, effective risk management remains one of the most essential components of financial infrastructure, according to Brian Saldeen, Senior Product Manager – Risk at Sterling Trading Tech.
“There’s heightened volatility with the tariff talk,” Saldeen observed, “but that shouldn’t really be unexpected.” He explained that cycles of low and high volatility have long been a feature of the market landscape.
From the dot-com bubble to the financial crisis, meme stocks, COVID-driven selloffs, and trade tensions, the catalysts may differ, but the need for adaptable, forward-thinking risk processes is a constant.
“Even though trading activity and some of the key risks are different in each of these environments, our complete risk management process should incorporate and anticipate these scenarios.”
One of the most important themes Saldeen emphasized is the value of consistency in risk practices, regardless of short-term fluctuations.
“Changing how risk is managed in reaction to the environment can lead to confusion and inefficiency,” he said.
“We know environments are going to change. We may not be able to predict the future, but we should be able to anticipate those shifts and design risk management processes that are built to adapt.”
He pointed to the 2021 meme stock surge as a case study. While some firms responded by manually increasing margin requirements for names like GME and AMC, Saldeen believes such reactive strategies are avoidable.
“That’s kind of a suboptimal way of managing risk. Instead, you can incorporate things like volatility-adjusted shocks or standard deviation scenarios that automatically adjust when the environment changes. There are more optimal ways to manage these kinds of scenarios without manual intervention.”
Sudden changes in risk thresholds can also contribute to broader instability in the market. “When markets decline, trading accounts naturally deleverage,” Saldeen explained.
“But if, in response to that decline, requirements are also raised, the pressure compounds. If this happens across multiple firms at once, it can exacerbate volatility and create systemic risk.”
He argues that maintaining a consistent process—one that adjusts dynamically based on data rather than discretionary overrides—can help avoid unintended consequences.
Dynamic approaches, such as standard deviation shocks, offer an automated and market-responsive way to assess exposure. “We’re really looking to the marketplace to define the risk for each security,” Saldeen said.
As volatility increases, whether due to fundamental changes or market sentiment, these models adjust in real time. “There’s no need for manual effort or reactive changes. It’s already built into the methodology.”
Timeliness also plays a critical role. Saldeen pointed out the limitations of traditional batch-based risk systems. “Fifteen years ago, many firms relied on reports generated at set times during the day. But significant events can unfold between those windows.”
He cited a government announcement delaying tariff implementation as an example—markets reacted sharply within a short time frame. “If a risk report isn’t scheduled for another two hours, that’s two hours of exposure without visibility. A real-time view into positions and market data is crucial.”
Another powerful tool, according to Saldeen, is historical Value at Risk (VaR), which dynamically updates based on recent market activity and helps identify exposure in a variety of forms. “VaR also allows you to incorporate correlation into the analysis,” he said.
“If you have correlated or negatively correlated positions, that can impact diversification and total risk. VaR helps pinpoint issues like macroeconomic risk, concentrated exposure, or unexpected correlations.”
Scalability is equally important. As Saldeen noted, inefficient risk systems often rely on manual processes and static reporting, creating operational bottlenecks.
“I know of firms where it takes 10 to 15 people to manage option expiration risk. But there are tools that allow that to be handled in a much more automated way.” Streamlining risk operations not only improves efficiency but also strengthens the ability to respond swiftly to emerging threats.
Saldeen closed by emphasizing that strong risk management isn’t just about limiting exposure—it can also unlock greater flexibility and agility.
“The better your practices, the less constraint you need overall. Efficient and transparent processes lead to better outcomes across the board.” In a market landscape defined by constant change, that kind of preparedness makes all the difference.
