Preparing for Global Market Dynamics

OTC Derivatives Operations

An OTC derivative is a customized, privately negotiated derivative contract traded directly between counterparties, without going through an exchange or other intermediary. Because of this, parties to OTC transactions are exposed to default by the counterparty. This is in contrast to the exchange-traded contracts, where the exposure to default is through the exchange's Central Counter Party (CCP) and is consequently much lower.

The market dynamics of OTC derivatives are seeing sweeping changes with the advent of the new regulatory reforms. eClerx provides operations support for OTC derivatives including Trade Capture and Enrichment, Trade Validation, Reconciliations, Settlements, Collateral Management, Exception Management, MIS and Reporting.

Challenges

  • Current regulatory reforms initiative will alter the structure and operations of the OTC derivatives markets thus impacting an institution’s derivative business operations, business model, profitability and technology need and usage
  • Varying levels of automation, inconsistent data across systems and locations result in high operational risk
  • Lack of technology build for managing trade information flow through internal and external systems
  • Requirement of real time swap data reporting to Swap Data Repositories (SDRs)

Solutions

Given the dynamics of this industry, eClerx has built competency in the operational space for OTC derivatives spanning middle-office and back-office operations, to help our clients to effectively manage their business.

Some of the solutions provided by eClerx are as follows:

  • Changing Regulatory Reforms
    • Extensive experience with data migration activities from legacy systems to newer platforms
    • Reconcile bank’s trade portfolios with the counterparty for identifying the best matching trade pairs and collateral exposure
    • Operational expertise, insight into regulatory changes and the ability to address new market conditions
  • Efficient Data Management
    • Automate back-loading of historical trades to electronic platforms like DTCC®, MarkitWire®, etc.
    • Maintaining and validating counterparty contact information
    • Updating static data information for trade enrichment
  • Process Re-engineering and Operational Risk Management
    • eClerx developed reconciliation tool to automate identification of inconsistencies between various systems and/or counterparty trade version
      • Near-real time reconciliation engine created for electronic platforms such as  DTCC®
    • Workflow tools used to govern fragmented processes
    • End-to-end system design and development support to implement robust solutions to common issues
    • Re-engineering the trade life cycle workflow to adapt to the changing regulatory landscape
  • Enhanced Management and Regulatory Reporting
    • Experience in managing regulatory reporting processes tailor made to suit client’s needs with real-time status
    • Web-based interactive dashboards to deliver customizable reports as per client requirements

Benefits

  • Enable banks to meet regulatory deadlines
  • Accurate data across systems helps to reduce operational, counterparty and market risks
  • Cost effective customized solutions
  • Minimized operational risk by achieving high execution rates and low fail rates
  • Avoidance of misdirected emails involving breach of client confidentiality
  • Customized metrics and reporting suites to provide diagnostic insights for Senior Management
    • Consistency across jurisdictions and product class facilitating benchmarking
  • Flexibility to quickly ramp up and ramp down team across different projects