We implement and automate compression and optimisation processes to drive operational efficiency for financial institutions.
When trading derivatives, firms must closely manage their capital risk positions and margins due to regulation such as:
These regulations dictate the amount of regulatory capital banks are required to hold, the amount of leverage they can take, and the Exposure at Default a bank can have against a given counterparty.
Compression activities seek to minimise the amount of regulatory capital required to cover a bank’s derivative positions without changing the positions’ risk profile. This allows for a bank to provide better liquidity to their clients and is crucial for a bank’s competitive position.
At any time, a Bank will have a large number of trades in both directions with multiple parties, leaving the gross trading position disconnected from the net risk position, in turn requiring the Bank to keep more capital in reserve to cover their net risk position.
The offsetting of trading activity can be collapsed on a multilateral basis and will leave each bank with a smaller set of gross trades that represent the same net risk position, but with lower gross trades, lower capital requirements.
Compression is not new. It has been a core activity for more than 10 years in many institutions. However, in most Banks, there still exists manual processes to complete compression and optimisation runs. This creates an expensive operational overhead and reduces the number of actionable opportunities.
Each Bank is unique with distinct operational preferences, process flows and adjacent systems forming part of their specific trading operations. This limits the full effectiveness of any single software solution to maximise opportunities for network participants, adding additional burdens in the form of overheads, delays, and unnecessary friction.
Our market analysis suggests the opportunity that exists from seamless vendor / client integration and further automation could lead to both annual operating efficiency and in more actionable opportunities across the network. This is done by:
Eliminating inefficiencies by standardising and automating the workflow from start-to-end achieving a low-touch approach to all compression / optimisation related activities. Achieve a BAU state.
Streamlining the credit check process, automatically excluding counterparties where the credit limit has been breached.
Seamlessly integrating with the Banks’ systems to reduce the amount of time spent preparing, uploading and checking the data.
Eliminating the need to manually perform the compression or optimisation execution allowing for more runs in a shorter time frame.
Within each client organisation there are individual considerations to achieve optimal success. Brickendon has developed a three phase approach for to identify the opportunity, validate transformation funding requirements and reach the end state:
Find the opportunity and identify the technical challenge
Outcome:
The opportunity: To achieve material cost reductions stemming from current inefficiencies and increase the scope and frequency of compression / optimisation activities offered to clients.
We will produce a roadmap to a clearly defined optimal scenario that takes into account all individual circumstances.
The challenge: We need to ensure that all stakeholders are aware, incentivised, and understand the benefits stemming from the proposed changes required to achieve the optimal scenario.
Design the process and the technical solution
Outcome:
The architecture: This is where we articulate how to achieve your goals. Architecture is not limited to IT systems as process engineering is as important, if not more important. It is therefore the combination of the two that will be tackled in this phase.
Execute the changes into the existing ecosystem
Outcome:
The Implementation: Each client poses a unique set of characteristics and integration requirements. To maximise clients’ opportunities, we often develop customised tools in addition to managing change within the organisation.
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