Case study

OSTTRA triResolve Margin Case Study: UMR compliance & SWIFT connectivity

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 tri-party 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.

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.

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