Some of the world’s largest banks are teaming up with tech vendor OpenGamma to develop a utility that will calculate how much collateral is required for bilateral derivatives trades.
The utility is being designed by OpenGamma, a risk management software firm backed by interdealer broker Icap, is the latest example of banks putting aside competition and coming together to meet challenges caused by new onerous market regulations.
OpenGamma’s open source code will initially be based on a standardised methodology developed by the International Swaps and Derivatives Association (ISDA), but will be quickly replaced with a different methodology pending industry approval.
“With capital scarce, financial firms are more focused than ever on developing high-value, proprietary innovations rather than re-creating industry-standard methodologies,” said Mas Nakachi, CEO of OpenGamma.
“That’s why we’re working with the industry to streamline and democratise the development of market structure solutions, which also fundamentally reduces operational and systemic risk through the inherent transparency of open source code.”
The industry is experiencing a wave of utilities that is flooding the market with solutions to the margin rules for uncleared derivatives. Most notably, Goldman Sachs is leading a project with a consortium of banks to develop a utility for exchanging collateral.
Earlier this week, SunGard released its new post-trade utility, with Barclaysbecoming the first customer whereby it would outsource specific derivatives clearing operations and technology processes.