19 July 2018
Luke Trigg

Luke Trigg

Luke Trigg - Logical Construct

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Margin reform for uncleared derivatives: ensure you build on solid foundations

11 July 2016  |  3386 views  |  0

The upcoming regulations for uncleared derivatives have banks with large concentrations of contracts facing a daunting re-papering task.
Help is at hand from a number of full-service vendors, law, process and technology partnerships offering to manage everything from contacting counterparties to drafting, renegotiating and providing data on the newly compliant executed contracts.
Most of the leading solutions offer a sensible approach – capture the key data points at point of negotiation as structured data that can be fed directly to the systems that use the data.  Unfortunately this is only half the picture.
In the most simplistic scenario, new or completely restated collateral contracts are used meaning that the new documents contain all the data you need.  In reality however, banks will want to keep hold of a proportion of existing contracts that may contain favourable terms for existing trades.
This is likely to create a layering of complexity - amendments to legacy contracts where only some of the data points are from the newly authored document along with the use of industry protocols to be combined with existing contracts.
Couple this with contracts that are authored by your counterparty and you will soon realise that your new data source must be joined with other legacy sources to provide the full picture.
From a data consumers perspective this means that you now need to look in even more places to piece together your contractual position for any given counterparty.  By combining information from your collateral management, legal and risk systems you might have the supposedly latest view of all this contractual data, but how do you know it is right?  What if the new ‘clean’ data builds on the foundation of incorrect existing data?
It is unlikely you will have any data provenance going forward and relying on data from systems that are not designed to hold all the legal information that can be held in a contract is a flawed approach.
Given the continual churn of new record keeping regulations, the optimal solution would be to abstract all of this behind a single interface providing data consumers with a unified view that has the ability to trace each data point back to its underlying source.
By having a programming interface on top of your documents, new and old, the need to constantly re-visit the same documents for different operational and regulatory needs can be put to bed once and for all.

TagsRisk & regulation

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job title Co-founder
location London
member since 2013
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Luke Trigg co-founded Logical Construct to answer the growing need for financial organisations to understand their contractual relationships at a granular level to meet trading, collateral, risk manag...

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