Northern Trust has expanded its OTC derivatives valuation and processing service for institutional investors and fund managers to include independent valuation of derivatives for its custody, fund administration and investment operations outsourcing clients.
The automated service - the brainchild of Judson Baker, who came to Northern Trust from Chicago-based hedge fund Citadel Investments Group to develop its OTC derivatives processing capabilities - uses services supplied by three third-party specialist providers of OTC derivatives valuations: Markit, Bear Stearns and SuperDerivatives.
"Independent valuation has become a crucial piece of the derivatives puzzle as institutional investors seek portfolio transparency to meet internal risk and compliance goals, as well as emerging regulation and industry best practices," says Baker, product manager for derivatives processing related services, Northern Trust. "For our best of breed approach, Northern Trust has selected independent pricing firms specializing in a range of swaps and options. Each provider has an extensive history in running market-standard valuation models, and Northern Trust brings them together in a cost-effective solution with coverage across broad product types."
In addition to independent valuation, Northern Trust's derivatives processing initiative includes automated collateral management for OTC derivatives trades under International Swaps and Derivatives Association (ISDA) master agreements. This offers calculation of exposures, making and receiving of collateral calls, managing collateral according to the terms of the credit support agreement, legal agreement documentation management, reconciliation and settlement.
"As volumes and product complexity in OTC derivatives continue to grow, so too do demands for independent valuations and greater transparency around these asset types," adds Stephen Andress, global head of derivatives operations. "Northern Trust is continuously working to enhance its processing capabilities for derivatives, allowing our clients to create a tailored service solution that integrates foreign exchange, cash management, derivatives clearing and other complementary services to support their diverse investment strategies."