Client: EUROPEAN UNIVERSAL BANK

Case study: Rule developed tri-party repo interfaces to feed risk systems

Business context:   The rise of the tri-party collateral market has seriously compromised the transparency of collateral information which proper risk management badly needs. Historically, collateralised funding deals were executed bilaterally. Cash moved one way, collateral moved the other, with both parties knowing exactly what collateral was held where. But this approach didn’t always result in the most efficient use of the collateral.  The use of tri-party agents such as Euroclear, Clearstream, JP Morgan and BoNY has enabled much more dynamic allocation and re-allocation of it, providing a much more efficient use of these assets. 

Unfortunately though, the two original parties may now not always know what collateral has been substituted for what.  Not a problem within the collateral world, but a big problem for risk management. At Rule we believe there is an effective solution to this dilemma.

Rule Financial Engagement:  Rule developed interfaces into each of the four main tri-party agents to extract critical collateral substitution data into a consolidated database to feed into the bank’s risk systems in the optimum form.  The four agents provide data in very different ways, so different mechanisms were needed in each case.

Benefits:  The bank was able to continue benefiting from the flexibility and efficiency of transacting funding deals through tri-party agents, while gaining the precise collateral movement data that enabled risk management to model credit, market and liquidity risk effectively.