Calypso Technology has developed a collateral optimisation solution designed to help buy- and sell-side firms adapt to shifting regulatory requirements for OTC derivatives.
The offering includes a proprietary algorithm that allows users to manage the collateral allocation process. Optimisation strategies are deployed based on substitution rules, targets, constraints and real-time information defined and governed by traders. Users may also plug in their own algos.
The system provides overviews of positions, collateral requirements and allocations. It also enables analysis of the cost of funding/collateral at the trade level, allowing users to reduce operational costs.
Regulators globally are currently establishing a new framework which will migrate much of the existing OTC derivatives market to use of central clearing, in part by requiring non-cleared OTC derivatives to be subject to higher capital charges.
“Under the new rules, many buy-side firms will have to pay initial margin whereas previously this was not the case,” said David Little, director, strategy and business development at Calypso Technology. “With many counterparties to a transaction, it becomes a difficult conjuring act to fit together the best possible allocation versus the new obligations. Calypso's solution looks carefully at the user firm's inventory, examines its obligations, and then chooses the best way to fulfil those collateral requirements.”
The Calypso software platform incorporates pricing, trading, risk, processing, clearing, margining, securities financing, collateral, cash management, liquidity, reporting and accounting for OTC derivatives and treasury products.
“Collateral management is now a very different game as businesses have become more focused on real-time collateral valuation and availability,” added Little. “The collateral management team has become an integrated part of the front office team, driving business decisions that are made based on real-time market data.”
The Calypso solution is integrated with the firm's trade management platform and is available both as a standalone offering and as part of a broader Calypso implementation. Calypso currently supports some 120 clients in 40 countries.