Markit, a leading, global financial information services company, today announced that its integrated resource management (IRM) solution has won the award for “best risk management system of the year” from Risk magazine. Risk is the leading publication for financial risk management and the global derivatives markets.
Markit Analytics’ IRM enables financial institutions to calculate and manage the capital and funding costs of their over the counter derivative trades in a single application and understand the tradeoffs between these costs over the lifetime of a portfolio of trades. Costs calculated include initial margin, risk weighted assets and credit valuation adjustment.
According to Risk, “the idea is to shed light on a host of questions that have become far more significant in a resource-constrained market - how to price novation packages and renegotiate collateral agreements for example. Banks can also use Markit Analytics’ IRM to replicate initial and variation margin calls under various stress scenarios […] The system includes a messaging function that can communicate inception pricing to all the relevant desks – that is, the incremental cost of entering into a new trade taking into account valuations adjustments, collateral, funding and capital considerations.”
Peter Left, director for capital and collateral management at Lloyds Banking Group, the first customer to take the IRM solution, told Risk: “The rate at which these costs are incurred means banks cannot ignore them. Markit recognised that cost transparency and efficiency were important to us in order to be able to optimise the capital and collateral employed across the business and enhance our returns. Essentially, what we wanted was a system that brought all three functions together – to replicate how we work and to minimise our costs across CVA, FVA, collateral and capital.”
Paul Jones, director of Analytics at Markit, said: “Firms want to leverage the investment they may have made in CVA systems but recognise they need to make trading decisions based on an integrated view incorporating CVA, RWA and funding costs across cleared and non-cleared derivatives.
“Increasing cost pressures, regulatory uncertainty and analytical complexity mean that firms want a vendor that maintains a high level of investment in their product so customers can remain on top of the latest market developments.
“We are delighted to see our efforts acknowledged with this prestigious award.”