Client type: Mid sized corporate
Existing reconciliation: In-house/manual

Challenges

The firm uses portfolio reconciliation as a financial control around swap position verification and to support the collateral disputes and hedging processes. In addition, they use counterparty mark-to-market as an observation point in their own pricing validation routines.

This was a manual undertaking they supported by collecting daily dealer statements for both swap positions and collateral positions, each from a different source and in its own format.

Given increasing trading volumes and number of counterparties, the lack of automation in the portfolio reconciliation process meant that the operations team struggled to manage these manual tasks in a timely and efficient manner:

• Capturing data from multiple sources
• Mapping and normalising the data into a specific format
• Running macros and queries to match data sets
• Resolving breaks in a timely manner

The manual nature of the tasks, as well as the dependency on counterparties’ timing and consistency in delivering required statements, meant that a lot of the team’s time and resource was being used to complete the process.

Time pressure, a lack of an organised workflow and a multiple-touch point process led to a greater risk of work repetition and an increased number of errors.

With an increasing workload, resolving the root cause of the differences was harder to achieve, which in turn was increasing the number of issues. In addition, the lack of transparency on the positions between parties also made it difficult to clearly communicate about breaks with counterparties.

Ensuring accuracy of their portfolio’s trade economics and valuations against their counterparties was key to reducing risk for the firm, as their hedging is only effective if they have an accurate view of exposures. In addition, they were finding that booking and processing errors had significant cost implications.

Our Solution

The firm took the decision to use OSTTRA triResolve for its portfolio reconciliation. Since all of their counterparties use OSTTRA triResolve as their primary swaps reconciliation engine, OSTTRA triResolve was able to streamline onboarding to their web-based leveraged technology platform and the client was up and running in just 10 days.

By centralising the reconciliation process, the firm now has access to all its counterparties in one place. OSTTRA triResolve can help with seamlessly automating the process, centrally receiving and normalising counterparty data and producing match results with a transparent bilateral view between parties.

This has resulted in an efficient, low-touch reconciliation process, where differences are highlighted instantly, enabling the firm to adopt an exception-based workflow. This allows the team to focus on the items that require their attention thus freeing up staff for higher value activities.

The firm can now work with its counterparties directly, in real-time, to resolve the differences, as opposed to working independently.

Additionally, the platform’s analytical, workflow, and communication tools allow root causes and underlying drivers of differences to be identified, assigned, tracked and resolved, thus contributing to a more accurate view of their portfolios’ exposures.

Positions can now be verified in a fraction of the time, ensuring the firm’s hedges are accurate. The firm has also automatically ingested counterparty mark-to-markets into their price verification process, increasing controls by eliminating any manual involvement.

To learn more about Portfolio Reconciliation, click here or contact us at info@osttra.com.

Client type: Major global energy firm
Regulatory impact: UMR Phase 5

To learn more about Collateral Management, click here or contact us at info@trioptima.com.

Client type: Large Japanese dealer bank

Existing support: Installed vendor solution for calculation of margin. Emails for exchange of margin calls and OSTTRA triResolve for dispute resolution.

Collateral profile: In scope for VM and IM requirements. Large number of counterparties across leading jurisdictions.

Challenges

The non-cleared margin rules meant the Bank was set to face both new minimum standards for margin and an associated increase in operations and costs.

Due to the Bank’s profile, the key elements of the regulation affecting them included:

• Requirement for zero thresholds in collateral agreements (CSAs),
• Mandatory margining with all financial counterparties,
• Mandatory daily exchange of margin,
• New requirements to calculate and exchange Initial Margin

After a review of their current external vendor solution, the Bank established that their existing fragmented and manual process was not able to handle the increased number of margin counterparties, margin calls and the calculation and exchange of the new initial margin amounts.

They needed a more efficient way of calculating and agreeing their variation (VM) and initial (IM) margin calls, ideally in one solution.

Our Solution

Like all other phase 1 firms impacted by the non-cleared margin rules the Bank took a decision to adopt the ISDA SIMM™ model for calculation of IM. This sensitivity based approach provides a standard model for ease of calculation but perhaps more importantly transparency.

The Bank and all other phase 1 participants recognised the benefit of not only utilising a common IM model, but also in using a standard industry-wide IM calculation and reconciliation engine (Acadia’s IM Exposure Manager) to enable efficient dispute resolution.

With the challenge of calculating IM amounts and resolving disputes addressed with IM Exposure Manager, the Bank then needed a way of handling all of the margin calls in one place and a method to ensure underlying VM and IM data are correct. By adding OSTTRA triResolve Margin to their existing OSTTRA triResolve services, the Bank is able to achieve these objectives. This provides the Bank with a suite of fully integrated web-based platforms which completes the VM and IM circle.

IM

• Trade level sensitivities and OSTTRA triResolve match data are fed into the IM Exposure Manager and IM amounts are calculated
• The calculated IM amounts are automatically captured in OSTTRA triResolve Margin where IM calls are managed
• Margin calls are sent and received electronically via the MarginSphere network
• Upon dispute, IM Exposure Manager is leveraged for efficient investigation and resolution

VM

• Leveraging OSTTRA triResolve data, the VM call is calculated in OSTTRA triResolve Margin
• OSTTRA triResolve Margin provides automated and exception based VM call management
• Margin calls are sent and received electronically via the MarginSphere network
• Upon dispute, OSTTRA triResolve provides advanced analytics to pinpoint meaningful differences

By using OSTTRA triResolve Margin the Bank was able to implement a single solution to address both the VM and IM challenges created by the non cleared margin rules.

They were able to go-live ahead of the September 1st 2016 deadline and have expanded their usage when associated regulatory deadlines came into effect in 2017. With the automated workflow, the Bank was able to use the opportunity presented by the regulation, together with new technology, to focus their resources on the risk rather than the process itself.

To learn more about Collateral Management, click here or contact us at info@trioptima.com.

Client type: Large Regional Bank
Regulatory impact: UMR Phase 5 

Client summary

A long-time user of OSTTRA services, including OSTTRA triResolve for portfolio reconciliation since 2010, the bank had previously expanded its use to include collateral management support via OSTTRA triResolve Margin to help prepare for UMR compliance. The transition from their previous Front Office collateral system to OSTTRA triResolve Margin provided new support for IM margining, enhanced functionality and improved workflow automation, something that was critical as they anticipated increasing volumes under UMR.

Problem

Under UMR they were subject to new regulatory requirements mandating that they segregate Initial Margin via triparty or 3rd party custodian.  Despite having in-house SWIFT capability for cash & securities collateral settlement, they could not support connectivity to triparty or 3rd party custodians in the same way.  A key challenge was the requirement to connect to multiple custodians, including: Bank of New York Mellon, Clearstream, Euroclear & JP Morgan. Settlement processing was further complicated by a requirement to notify each triparty of movements both when receiving and posting IM collateral.

Standard triparty connectivity options – instructing individual settlements via separate custodian portals, or fax – did not appeal to them.  Similarly, build out of their own connectivity to each custodian was considered costly and inefficient, given no experience with the new collateral segregation models, and magnified by a need to connect to not just their own triparty, but those of their counterparties too.

Our Solution

The Bank took the initial decision to leverage an industry utility for instruction of collateral movements via SWIFT.  However, it soon became clear that it did not provide connectivity to all the required custodians.  As the UMR deadline approached, the Bank decided to supplement the use of the settlement utility and expand their use of OSTTRA triResolve Margin to provide the additional connectivity.

This approach saw the Bank instruct all SWIFT settlements via OSTTRA triResolve Margin, with some being routed via the industry utility, and others being instructed directly via the OSTTRA SWIFT gateway. However, this still required a separate login to the utility to view collateral settlement status updates for those settlements they instructed.

Within weeks of UMR go-live the Bank quickly decided that the ‘dual’ settlement approach was not efficient and opted to extend use of OSTTRA triResolve Margin for the instruction of all collateral transfers and to end their use of the utility. This decision was due to the system’s ability to connect to all triparty agents, support for an extensive set of SWIFT message types and provision of real-time settlement transparency. Further, by combining their margin & settlement workflows in OSTTRA triResolve Margin the Bank was able to increase operational efficiency, as well as reduce the risk of incorrect bookings & failed settlements.

For users, upon completion of the margin call workflow a collateral instruction is automatically generated for approval. The system then automatically creates an IM collateral instruction message (MT527/540/542) which is sent in real-time directly to the required triparty or custodian. Collateral settlement status updates are received (MT558/544/546/548) providing insight and certainty. Additional transparency is provided via collateral reporting which offers a single consolidated view of all collateral assets, regardless of the triparty (MT569/535).

By leveraging OSTTRA triResolve Margin’s robust SWIFT connectivity, the Bank was able to support all requirements without the need for custom development and complex testing. Use of a single solution for both IM margin management & IM collateral settlement allows the Bank to benefit from a fully automated workflow, ensuring maximum levels of STP. From call issuance to collateral instruction, all steps can be automated and managed via a single dashboard, saving time, reducing risk and lowering the chance of failed settlements.

To learn more about Collateral Management, click here or Contact us

Click here here for more information about SWIFT Settlement.

Client type: Major Japanese Bank
Regulatory impact: UMR Phase 1

Client summary

A long-time user of OSTTRA triResolve for portfolio reconciliation, alongside legacy vendor system for VM collateral management, with manual email-based workflow for exchange of margin calls. Impacted by the first wave of UMR regulations in September 2016, they required new tools to support the IM margin process, including storage of IM agreements; IM call calculation; IM call workflow; support for electronic exchange of IM margin calls; connectivity to industry infrastructure for IM reconciliation and connectivity to triparty agents for collateral settlement.

Problem

The Bank had an existing VM margin process supported by an installed vendor system. While this provided support for the traditional VM call process, it was assessed as not being suitable to support new additional IM margin requirements. Key gaps included no connectivity to industry infrastructure; zero drilldown capability; no automation and onerous requirements for annual system upgrades.

While the Bank’s initial focus was to establish an automated IM margin call workflow, during the UMR project they identified a new problem, previously not in-scope. As they onboarded to new custodians & tri-party agents to support collateral segregation requirements, it quickly became clear they would need to establish a new process to ‘connect’ to each one. Their existing in-house payment system did not support tri-party and traditional options to instruct collateral payments via custodian portals, or fax, were deemed too manual, overly slow and subject to error.

The build out of their own connectivity to each custodian was considered costly and inefficient, given no experience with the new collateral segregation models, and magnified by a need to connect to not just their own tri-party, but those of their counterparties too.

Our Solution

The Bank took the decision to implement OSTTRA triResolve Margin for IM margin management.

The provision of a fully automated workflow, combined with integration to both Acadia’s IMEM service, and OSTTRA triResolve, ensured they could manage all IM requirements from a single dashboard.

As part of this decision, the Bank also chose to leverage the system’s SWIFT connectivity for settlement automation capability. This was chosen due to the high-level of flexibility and automation it offered. As a global bank they required connectivity not just to their own preferred tri-party, but a wider industry network. This included: BNY Mellon, Clearstream, Euroclear and JP Morgan.

In addition to allowing connectivity to a wide range of custodians, the system also offers support for the specific technical & booking requirements of each one, thus removing the need for complex bespoke configuration. Off the shelf support for a wide range of SWIFT message standards allows instruction of collateral via tri-party or 3rd party methods.

For users, upon completion of the margin call workflow a collateral instruction is automatically generated for approval. The system then automatically creates an IM collateral instruction message (MT527/540/542) which is sent in real-time directly to the required tri-party or custodian. Collateral settlement status updates are received (MT558/544/546/548) providing insight and certainty. Additional transparency is provided via collateral reporting which offers a single consolidated view of all collateral assets, regardless of the tri-party (MT569/535).

By leveraging triResolve Margin’s standard & robust SWIFT connectivity, the Bank was able to go-live quickly, without the need for custom development and complex testing. Use of a single solution for both IM margin management, and IM collateral settlement, allows the Bank to benefit from a fully automated workflow, ensuring an end-to-end STP process. From call issuance to collateral instruction, all steps can be automated and managed via a single dashboard, saving time, reducing risk and lowering the chance of failed payments.

To learn more about Collateral Management, click here or contact us at info@trioptima.com.

Client type: Major international asset manager with assets in excess of $350bn

Existing collateral support: In-house spreadsheet based solution for calculation of margin. Emails for exchange of margin calls and OSTTRA triResolve for dispute resolution

Collateral profile: In-scope for VM requirements. Trading OTC derivatives in all major markets across several hundred funds, with several thousand collateral agreements

Problem

The company’s internal tools provided limited collateral management capability. This created daily challenges to manage data feeds from multiple trade and market systems, and data quality issues were frequent. The process was time consuming and required a high-level of user input and diligence. As a result, the organisation had an overreliance on counterparty calculated margin amounts and reporting, and felt they were not fulfilling their own risk management objectives.

They needed to update their processes. However, faced with a significant increase in collateral agreements due to the uncleared margin rules, any new solution needed to be fast to implement, scalable and facilitate STP.

Solution

Following an RFP process, OSTTRA triResolve Margin was selected as the solution that best suited their needs. Not only was it deemed to meet all functional requirements, it also fitted with the company strategy of adopting web-based solutions.

Key stakeholders identified a number of key advantages in OSTTRA triResolve Margin. The main drivers included its ability to proactively support the uncleared margin rules, rather than being a retro-fitted product, and unlike other offerings, it provided a seamless way to manage margin call disputes. It also offered out of the box access to the Acadia’s MarginSphere™ messaging service, which in turn would enable automated connectivity to their broker counterparties.

Due to the large volume of collateral agreements, onboarding was phased by a combination of fund and broker. The first phase, in excess of 600 collateral agreements, was live within 2 weeks. The entire onboarding process was managed by the OSTTRA triResolve service management team who took responsibility for the key tasks of collateral agreement set-up and counterparty connectivity and approval in MarginSphere.

Subsequent phases delivered automated margin connectivity for all funds and corresponding dealers, which equated to several thousand collateral agreements.

In a matter of weeks they were able to decommission their old manual processes and achieve unprecedented levels of STP.