Grappling with rising costs and tougher regulatory scrutiny, many trading firms are looking to outside services to manage risk.

The new services, including some that offer Internet access, mostly target smaller banks and institutional investment firms that have expanded beyond trading simple financial products. and Axiom Software Laboratories, both in New York, offer risk analyses that don't require large up-front investments in internally run, enterprisewide risk systems.

Imagine Software Inc., a New York trading and risk software house, said it plans to introduce a Web-based risk assessment service this summer.

"An outsourcing service can provide the needed expertise, resources, and objectivity," said Kelsey Biggers, president and chief executive officer of

He said the near-collapse of the Long-Term Capital Management hedge fund last September has spurred other funds to step up risk monitoring and reveal portfolio exposures to clients. It has also heightened regulators' awareness of the dangers of trading exotic financial instruments.

Though many smaller institutional investors and money managers have begun trading more complex products, their risk measurement techniques have not necessarily kept pace. Common spreadsheet-based risk measurement or standard metrics such as those offered by J.P. Morgan & Co.'s spinoff, RiskMetrics Group, are geared more toward simple products than toward exotic instruments., launched in March, offers a Web-based service that measures market, credit, liquidity, operational, settlement, and legal risks.

Axiom incorporates its RiskMonitor software in its year-old service bureau to calculate risks. Like, it is getting the most interest from institutional investors and money managers, said Alexander Tsigutkin, president.

Many of these buy-side investors are seeking ways to keep up with the latest in risk measurement without making large, continuing technology investments, said Donald C. Mumma, managing director of Axiom's outsourcing unit. The cost of Axiom's service varies from $10,000 to $120,000 a year, based on the analytics provided, he said.

Peter W. McClean, senior vice president in risk management at Bank of Bermuda, which was's first customer, said cost savings was the main driver in his bank's decision to outsource rather than build and support risk measurement in-house.

Bank of Bermuda, which is an investor in, is using the service for its fixed-income portfolio, Mr. McClean said. Eventually it will make the service available to its institutional clients.

Mr. Biggers, previously executive vice president of New York-based MicroModeling Inc., founded with investments from GTE Investment Management Corp., Morgan Stanley Dean Witter, Bank of Bermuda, XL Capital, Algorithmics, and KPMG LLP.

The idea for the company emerged during Mr. Biggers' time as a managing director at Bankers Trust Corp.

He oversaw a service that offered the company's methodology for Raroc- risk-adjusted return on capital-to custody clients. When Bankers Trust rebuffed his suggestion to spin off the Raroc business, the seeds for were planted.

Mr. Biggers said is more "industrial-strength" than the Bankers Trust service. It has more functionality related to the handling of equities, for example.

Measuring a fund's performance in relation to other funds remains at the heart of buy-side risk management. compares all risks against industry benchmarks to determine a "tracking error," the risk-based difference in performance, Mr. Biggers said.

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