New Integrated Resource Management solution will enable financial institutions to manage balance sheet resources dynamically and optimise trading decisions
Markit, a leading, global financial information services company, today announced it has enhanced its front office analytics solution to enable financial institutions to calculate the costs of funding and capital resources of their over-the-counter (OTC) derivatives trades in a single application.
At a time of regulatory change and when the cost of funding and capital is rising, the new Integrated Resource Management (IRM) solution will enable customers to dynamically manage their balance sheet resources and optimise trading decisions prior to execution. IRM has been installed at a customer site, with implementation at other financial institutions under way.
Under the Dodd-Frank Act, the European Market Infrastructure Regulation (Emir) and Basel III regulations, uncleared OTC derivatives will incur Credit Valuation Adjustment (CVA) risk capital charges, default risk capital charges and minimum initial margins. Meanwhile, market participants trading centrally cleared derivatives will be subject to capital charges for default fund contributions and central counterparty trade exposures and will also be required to fund initial margin.
Paul Jones, director, Markit Analytics, said: “The economics of OTC derivatives are changing. There are numerous capital and funding costs that now need to be considered before executing a trade. By bringing our established CVA, risk weighted assets and initial margin solutions together, our customers can run interactive scenarios with ease to understand the tradeoffs between these components. This was made possible by the speed of the Markit Analytics engine and is the first of its kind.”
Financial institutions will use Markit’s solution to price novation packages and renegotiate credit support annexes (CSA), helping them decide whether to move existing OTC derivative trades onto new Isda CSAs. Financial institutions will also be able to use IRM to replicate initial and variation margin calls under various stress scenarios.
Markit Analytics provides financial institutions with state-of-the-art, scalable pricing and risk management solutions to help them calculate capital needs efficiently and optimise balance sheets and return on equity, in line with evolving regulatory requirements.