Risk and collateral management – fit for the new clearing landscape with growing volumes and versatile scope of cleared contracts
Cinnober announces the launch of a stand-alone risk management solution dedicated to the needs of central clearing counterparties (CCPs).
The post-financial crisis regulations, including Basel III, EMIR and Dodd Frank, have transformed the landscape for clearinghouses. A wider range of contracts are traded on electronic platforms and cleared centrally, and the importance of CCPs as safeguards of financial stability has increased.
“CCPs have to a large extent been left with risk solutions originally developed for banks,” says Nils-Robert Persson, Chairman of the Board at Cinnober. “The requirements on CCP’s risk management has become more complex. We’ve built a solution that meets extreme criteria on speed and functionality – facilitating compliance with regulatory obligations, realization of business development opportunities and competitive services while never compromising risk management.”
Cinnober’s new solution TRADExpress CCP Risk offers a single point of access, enabling efficient risk and collateral management across all asset classes and instruments cleared by the CCP, OTC as well as exchange-traded. High-speed, real-time risk calculations, and automated work processes give timely and qualified analyses, and facilitate compliance with regulatory obligations.
The first customer to implement the system is Japan Exchange Group (JPX), planned to go live during 2018 with its new risk solution across the entire Japanese market of equities, bonds, futures, options, CDS’, and IRS’.
TRADExpress CCP Risk enables CCPs to run multiple risk models in parallel. This allows them to migrate from old models to new, more sophisticated statistical approaches better fit for today’s versatile array of cleared contracts. A dynamic plugin framework for valuation and risk measure algorithms gives each CCP the flexibility to rapidly test and introduce new models — all fit to their needs.
“CCPs need to avoid overburdening market participants with excessive margin requirements without becoming a systemic risk to the financial industry,” says Mikael Öhman, Chief Architect Risk Solutions at Cinnober. “For this, new methods and procedures that give a full view across all asset classes and instrument types are required, and that’s what we’re introducing with TRADExpress CCP Risk.”
Key functional areas of the system include:
Initial Margin modeling
Credit and Liquidity Stress Testing
Credit Risk Waterfall and Liquidity Resource Pool modeling
Market data and risk factor modeling Default Fund Management
Back testing and model validation
TRADExpress CCP Risk can be integrated with Cinnober’s TRADExpress RealTime Clearing solution, or any other third party clearing system.