OpenGamma, creators of the first open-source analytics and risk management platform for the financial services industry, today announced a new margining platform for clearing members to support the initial margin calculation requirements of central counterparties (CCPs) on OTC swap transactions.
Governments and regulators are pushing for large structural changes to the OTC derivatives market, such as mandating the central clearing of transactions that have historically been settled bilaterally. This results in the new requirement for initial margin (IM) to be posted on all transactions. Combined with the need for both pre- and post-trade risk-measure-based credit limit checks, it is fueling the demand for much faster calculations of such risk measures. A common approach today is to rely on approximations or proxy measures instead of calculating these margins with a high degree of numerical precision - primarily due to technology constraints - but this is quickly becoming untenable.
"The swaps market is transitioning from one in which overnight batch jobs were the norm to one that requires trades to be cleared in seconds and margin to be posted intraday," said Kevin McPartland, Head of Market Structure Research at Greenwich Associates. "In order to provide safe and cost-effective access to clients in that marketplace, it is critical that FCMs manage the flow of margin in a timely and accurate way."
The OpenGamma Platform for Margining provides a lightweight, low-latency solution that enables clearing members, such as Futures Commission Merchants (FCMs), to run complex margin calculations and stress tests on client accounts and new orders in milliseconds. The platform combines the real-time risk engine of the OpenGamma Platform with a comprehensive in-memory data management platform to support new critical client requests, and replication of the IM and variation margin (VM) calculation methodologies of many of the key CCPs.
Using the OpenGamma Platform, FCMs can run full margin re-calculation of client accounts as large as 10,000 swaps in less than a minute on one commodity CPU, and respond to SEF ping requests using full IM replication in as little as 3.6 milliseconds. In addition, users are able to analyze the margin and collateral impact of proposed trades and conduct 'what if' scenario analyses - capabilities that can also be offered as value-added tools to their end clients.
Critically, the platform provides access to all supported CCPs' margin methodologies through a single API, so FCMs can integrate once and get access to full multi-CCP capabilities without the costly effort of supporting custom libraries and APIs for each clearing house and asset class. Thanks to the solution's light, thin and fast technology profile, it integrates effortlessly into existing technology stacks without the need for wholesale replacement of earlier technology investments.
"The new IM/VM requirements have dramatically changed the way clearing members will need to approach risk management," said Mas Nakachi, CEO of OpenGamma. "The industry acknowledges that notional exposure and sensitivity-based limits are not appropriate in the longer term, and the move towards computationally intensive full IM-based checks is inevitable. This places increased demands on CCP connectivity and performance, and FCMs will need to implement effective solutions to remain compliant and competitive in the new market environment. The OpenGamma Platform for Margining infrastructure runs on site, which ensures that client account portfolio information is secure and complies with prevailing privacy policies, and that required low-latency demands are met."
Added Kirk Wylie, Co-Founder and Executive Chairman of OpenGamma: "The OpenGamma Platform for Margining includes the flexibility of our original market risk platform, empowering clearing members to tackle regulatory changes with effective on-premise solutions. Regulators continue to push the industry to STP trades at ever-increasing speeds to meet the new OTC market structure requirements. That's why we've invested a lot of resources into building a solution that allows our clients to do full intraday re-margining of their portfolios, updating and checking against any associated IM-based limits, and responding to SEF pings in real time."