Business Situation
In response to recent regulations that require parties engaging in largescale OTC bi-lateral derivatives trading to post a new form of collateral — called initial margin (IM) — to protect against risk, this company needed to build a new IM calculator into its existing credit risk platform. Failure to comply would effectively shut down its ability to perform trades for its customers.
As the regulation deadline was fast approaching, the company needed a partner to develop the tool quickly, with the ability to respond to new requirements as they arose. Thanks to our experience in the capital markets space, it chose Avanade.
"Across the industry, we’re seeing increased amounts of regulations being brought on board. The challenge that the clients are facing is being able to access to all of the data they need to comply with these regulations. This is where we can help."
Solution
The IM calculator was built on schedule, from the ground up, using .net. The tool gathers risk, trade and reference/market data and uses a set formula to automatically calculate IM. It then creates a report that tells each party how much collateral they need to post. The tool is used mainly by the collateral management team, which liaises with traders during the collateral process. Results are analyzed in-house and sent to a third-party firm that monitors industry-wide information, allowing for anonymous comparisons and transparency.
Results
The new tool has allowed the company to continue serving its clients without interruption and for the company to satisfy its regulatory requirements.
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