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.

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