OTC Derivatives_BFS Story, Business Intelligence and Analytics, Trade Processing Platform, Data Management, OTC Derivatives, EDM solution, contract

Story Series

OTC DERIVATIVES

A Smarter way to Trade Around Volatilities

OTC Derivatives are private contracts between counterparties that are not traded through major exchanges or other intermediaries. The price of derivatives are based on or derived from the value of one or more underlying assets. When the value of the underlying assets, typically stocks, bonds, currencies, commodities and/or market indexes, fluctuate, the value of the derivative will fluctuate as well. But unlike listed derivatives, in the case of OTC derivatives, there is no intermediary to specify the nature, quantity or value of the underlying assets.

OTC derivatives are usually negotiated and customized to suit the exact risk and return needed by each party, and prices are not visible publicly. That gives flexibility, but adds to the complexity of auto-processing, and also poses credit risk due to the absence of an intermediary clearing corporation or central exchange.

Winds of Change Begin to Blow

It was the financial crisis of 2008...

...that brought the previously unregulated practice of OTC derivative trading under the radar of global financial regulators. The leaders of the G20 nations noted that OTC derivatives contributed significantly to the financial meltdown. International laws were passed to ensure that OTC derivative contracts were traded on centralized exchanges and be reported to trade repositories. The current emphasis on efficient information exchange and related regulations do not take into account the extensive range or complexities of the servicing tasks that need to be undertaken before arriving at a derivative valuation that can be published.

A Derivative Transformation Program in Trouble

Our client is one of the oldest banks in the US with $1.07 Trillion in assets under management and about $10.13 Trillion in assets under custody. The client was consolidating its trades processing platform and was phasing out a third-party product that had significant scalability and support issues. The new trade processing platform was to be implemented with onboarding of 40 OTC derivatives product types as a part of the derivatives transformation program.

The 40 product types on one hand included some high-volume products like IRS (Interest Rates Swaps) and CDS (Credit Default Swaps), and one the other hand some complex and exotic derivatives like Asset Swaps, Swaptions, CFDs (Contract for Difference) along with product types like Commodity Index, Equity Index, Equity Swap, Zero Coupon Swaps, Basis Swaps, Variance Swap, Cross currency Swap, Options.

The wide variety and complexity...

...of the derivative portfolio was making it difficult to onboard all products on a consolidated platform. Efficient reporting and effective compliance were increasingly harder to achieve.

Our client was handling massive amounts of critical customer data which included financial data, comprehensive trading information and other secure details. But it was hard to gain useful insights or business value out of the data because their new trade processing platform had inadequate data management, reporting and reconciliation capabilities. Also, the downstream systems like Fund Accounting and Asset & Pricing Systems, and Data store or Client reporting systems found it very difficult to use the data in meaningful ways.

Hexaware partnered...

...to address the demands of data managers for speed and accuracy, as well as reporting and reconciliation requirements, while ensuring excellent data quality.

Solution Offered

Our experienced team began the transformation journey by applying Data Management Principles to bring standardization and accuracy in OTC Derivatives post trade data. This was made possible by designing and implementing a comprehensive data management solution using an EDM tool. The EDM solution made it possible to onboard 40 OTC derivative product types which was not the case earlier.

Data from the Trades processing platforms like Transactions, Positions, Complex trade events, Reference data like Securities and Pricing, Accounts, Entities etc. was loaded into the EDM solution; and after validations, enrichment, and translations the data was loaded into the data warehouse. This system supported different versions of trade data in FPML format, which is managed by the International Swaps and Derivatives Association (ISDA).

We created several robust API interfaces...

...that made it easy for applications to fetch data from the source system and to generate complex reports.

with an Efficient OTC Derivative Trade Processing Platform

A Satisfied Client

Some of the benefits delivered

Significant enhancement in the data quality and data availability

Reporting made simpler and faster

Implemented effective common data model and data warehouse solutions

Developed exception dashboard for the operations team

Automated Testing framework developed for regression testing ensuring zero business disruption

UI was developed to track different status of the trades

www.hexaware.com | marketing@hexaware.com

Metro 101, Suite 600,101 Wood Avenue South, Iselin, New Jersey - 08830 Tel: +001-609-409-6950 Fax: +001-609-409-6910

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Hexaware is the fastest growing next-generation provider of IT, BPO and consulting services. Our focus lies on taking a leadership position in helping our clients attain customer intimacy as their competitive advantage. Our digital offerings have helped our clients achieve operational excellence and customer delight. We are now on a journey of metamorphosing the experiences of our customer’s customers by leveraging our industry-leading delivery and execution model, built around the strategy— ‘Automate Everything , Cloudify Everything , Transform Customer Experiences ’. Hexaware services customers in over two dozen languages, from every major time zone and every major regulatory zone. Our goal is to be the first IT services company in the world to have a 50% digital workforce. Learn more about Hexaware at http://www.hexaware.com

About Hexaware

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APAC Headquarters

The client was consolidating its trades processing platform and was phasing out a third-party product that had significant scalability and support issues. The new trade processing platform was to be implemented with onboarding of 40 OTC derivatives product types as a part of the derivatives transformation program.

Hexaware is the fastest growing next-generation provider of IT, BPO and consulting services. Our focus lies on taking a leadership position in helping our clients attain customer intimacy as their competitive advantage. Our digital offerings have helped our clients achieve operational excellence and customer delight. We are now on a journey of metamorphosing the experiences of our customer’s customers by leveraging our industry-leading delivery and execution model, built around the strategy— ‘Automate Everything, Cloudify Everything, Transform Customer Experiences.’Hexaware services customers in over two dozen languages, from every major time zone and every major regulatory zone. Our goal is to be the first IT services company in the world to have a 50% digital workforce. Learn more about Hexaware at http://www.hexaware.com