BNP Paribas Securities Services has launched a new service to help asset owners measure and monitor the counterparty and liquidity risk arising from their derivatives exposure and anticipate their long-term collateral requirements. The service is already used by AIA Group, a long-term risk and analytics client of BNP Paribas Securities Services in Asia.
As regulations have generalized the use of collateral to mitigate counterparty risk and require market participants to meet collateral calls over the full lifetime of an OTC derivative, asset owners are exposed to increased liquidity risk. The challenge has been exacerbated by recent market volatility.
Using BNP Paribas’ new solution based on big data analytics and calculations engines, AIA is able to assess its collateral needs at any given time and take into account collateral constraints in its trading decisions. AIA can reprice derivatives and collateral in more than 3,000 economic scenarios. A powerful data visualization layer enables AIA to drill into the data and proactively manage its derivatives books in different economic scenarios.
Mark Konyn, group Chief Investment Officer at AIA Group, said in a statement: “Managing derivatives portfolios in different jurisdictions across Asia Pacific requires robust risk management and governance processes. Tools that support the asset owner calibrate collateral requirements are critical.”
Philippe Tassin, head of Asset Managers and Asset Owners, Asia Pacific at BNP Paribas Securities Services, said in a statement: “For our asset owner clients, predicting their collateral needs, and optimizing increasingly scarce collateral resources, have become vital to the success of their investment and risk management practices. They have to ensure they can satisfy every collateral call over the lifetime of each OTC derivative in their books.”
He added that the service means those clients can manage “the huge amount of data and complex calculation and pricing models required to simulate a multitude of what-if scenarios across the lifetime of their derivatives portfolios. “