Automated margin (VM & IM) solution for Dealer Bank

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.

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

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.