Collateral Management Support for Central Clearing

Following the financial crisis of 2008, regulators in many countries have looked at ways to bring transparency to the OTC derivatives markets.

Regulators identified trading via central clearing counterparties (CCPs) as the most effective way of making markets more transparent. CCPs are also seen as a way of mitigating counterparty credit risk and reducing the likelihood of systemic contagion in the event of a large interconnected firm defaulting.

To achieve these aims, the Dodd Frank regulations in the US and EMIR in Europe mandate the central clearing of all standardized derivatives trades.

Collateral managers and traders now face added complexity in their roles as initial and variation margin need to be posted to CCPs. EMIR and Dodd Frank also require more frequent, often intraday margin calls. This process places a strain on operations and increases the amount of eligible collateral firms must source for pledging to CCPs.

The 4sight collateral management solution offers a range of features that help ease the transition to trading via CCPs. The collateral system can help users to reduce the operational burden of the CCP margining process, optimise collateral flows and create new opportunities for revenue generation in the new market structure.

Support for IM, VM, Buffer Adjustment and Default Fund Contributions

The 4sight collateral management solution allows users to process collateral and margin calls when trading via CCPs. The system's intuitive workflow guides users through the posting of initial margin, variation margin (per currency), default fund, buffer adjustment and ad-hoc margin calls.

The system offers real time updates and supports margin calls on both a start of day and intraday basis. The functionality has been designed so that it can be used to reflect multiple CCPs and/or Clearing Brokers/FCMs (if you are not a direct member).

4SF supports this functionality for customers acting as:

  • Direct CCP Members
  • Clearing Broker/FCMs
  • Clearing Clients (i.e. clearing through a Clearing Broker/FCM)

Central Clearing Key Features:

  • Automated updates of collateral schedules through feeds from the CCP
  • CCP start of day IM/VM cash pledge processing
  • Margin call workflow with colour coded dashboards
  • Straight through processing of margin calls reduces manual effort
  • Collateral optimisation algorithms to ensure the pledging of 'cheapest to deliver' collateral the CCP will accept
  • Support for trade reporting

For Clearing Brokers:

  • Segregate 'house' margin from client margin
  • Link the CCP margin flows to the underlying clients, to reflect the 'opposite' exposure
  • Support for collateral transformation and associated repo trades
  • Reporting on client exposures to CCPs

Further Information

For further information on the CCP support in the 4sight Xpose system for Securities Lending, Repo and Derivatives collateral management or a product demonstration, please Contact Us

Read about the latest developments in collateral management technology and collateral optimization techniques here.

Download the 4sight Collateral Optimisation Whitepaper

Read about the ROI on Collateral Optimisation Techniques

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