Buy-Side Technology Awards 2013: Best Buy-Side Risk Management Initiative—LCH.Clearnet

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Will Carling, Jose Ribas (Bloomberg), Chris Grayston, Dibyendu Majmumdar and Victor Anderson

The award bonanza for LCH.Clearnet’s SwapClear Margin Approximation Risk Tool (Smart) continues thanks to a savvy partnership with the Bloomberg Professional Service, which has exposed it to potentially over 300,000 pairs of eyes. Bloomberg in August became the first financial information platform to integrate Smart, which enables the simulation of portfolio risk exposure by performing initial margin calculations prior to trading and clearing.

The buy side is behind the sell side when it comes to fully grasping the new market structure of cleared swaps under Dodd–Frank, the European Market Infrastructure Regulation (EMIR), and similar regulations. Many buy-side firms need help understanding how their risk profile is affected by the new margin requirements. Smart, with its on-demand margin calculations, helps them to not only better understand their risk, but also to achieve collateral efficiencies.

SwapClear members appreciated the functionality of Smart as a standalone offering, although they preferred a single solution that not only offered collateral estimation but also analytics, trade execution, and access to clearing. The integration with Bloomberg is a response to that. It allows all Bloomberg Professional Service subscribers to simulate their portfolios’ exposure to risk factors and perform instantaneous, consistent margin approximations, prior to clearing, at the point of execution, and for no additional cost.

“The introduction of on-demand margin analysis onto a platform that participants are already using to analyze risk and execute and submit trades for clearing reduces costs and enables participants to make better trading and risk management decisions,” says Daniel Maguire, head of SwapClear US.

Smart’s distributed margin-simulator architecture is unique among over-the-counter (OTC) derivatives central counterparties (CCPs) in that users can simulate calculations on their systems instead of sending the CCP portfolios and waiting for results. To stay prepared for a shift in the interest-rate environment, LCH.Clearnet implemented major enhancements to its pairs methodology in mid-2013.

“As a result of mandatory clearing requirements, the need for on-demand margin analysis is critical, and accessing a clearinghouse’s margin calculations on the Bloomberg Professional service helps me to manage my investment decisions and operations,” said Matthew Lynes, Aberdeen Asset Management portfolio manager, when the integration was announced. “Bloomberg continues to provide the solutions the industry needs in order  to meet regulatory requirements and make better-informed investment decisions on behalf of our investors.”

"Smart’s distributed margin-simulator architecture is unique among over-the-counter derivatives central counterparties in that users can simulate calculations on their systems instead of sending the CCP portfolios and waiting for results."
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