7/31/2019 Lombard Risk collateral management for Repos and securities borrowing lending

1/2www.lombardrisk.com Managing collateralised trading. Enabling regulatory compliance

Solution sheet

Lombard Risk business and risk experts

explain: REPOS and

SECURITIES BORROWINGand LENDING usingCOLLINE

Introduction

The Lombard Risk COLLINE collateral management system isbeing extended to support a market-leading, best practice

margin process for REPOS and SECURITIES BORROWING andLENDINGproducts: COLLINE REPOS/SBL module.

REPOS: are products traded under a Global MasterRepurchase Agreement (GMRA), where securities (bonds)are loaned on a bilateral basis versus cash. At a given point intime the bonds and cash are returned to the original owners(hence the term repo aka repurchase) . During the term of arepo trade, the value of the securities and cash legs willfluctuate (cash will accrue interest and securities are subject tocoupon accrual and MtM price changes). The differencebetween the valuation on the security and cash trade legsrepresents exposure to one party . The net exposure of allopen trades in a bilateral repo portfolio forms the basis of the margin call.

SECURITIES BORROWING and LENDING (SBL): is the lendingor borrowing of bonds or equities and is a similar tradestructure and exposure calculation to a Repo.

Key differences are:

There is usually a fee payable(by the borrower to the lender)

They are transacted and margined under separatelegal agreements (GMSLA standard) and tend to havedifferent ownership rights

There may not always be a cash leg attached to thesecurities loaned

There may be multiple margining/booking methodsemployed within a master agreement

The Repo and SBL markets are estimated to be valued>$12trillion across US and Europe alone. Established Repomarkets are also active in Japan, South America and China andfurther market growth is widely anticipated as a result of mandatory global clearing initiatives in and beyond 2012.

New regulations (Dodd Frank, EMIR and their global regulationequivalents) will demand increased levels of higher qualitycollateral within the OTC derivatives/CCP market, and it is

widely believed that this will force new participants into therepo market to source collateral as cheaply as possible tomeet their OTC/CCP margin obligations.

Globally we anticipate an influx of new repo participants,

who will require margining facilities under their new GMRAbilateral relationships.

Cross-product margining

Collateral management has traditionally been managed inproduct silos meaning one product, one margin system.

Firms are increasingly looking to consolidate their marginviews and exposure management processes on to a singleplatform because:

The volume of collateralised trades isincreasing to minimise risk post financial crisis

Regulations are making managingcollateralised trades more difficult withhome -grown, spreadsheet solutions i.e.coping with CCP, clearing, resolution disputemanagement and more.

The benefit of a single platform to manage collateral is clear:

Process efficiency

Consolidated statements

Consolidated reporting and

Consolidated inventory management

Single system support.

The legal implications of cross-product margining need tobe considered (e.g. offset exposure across OTC Derivatives,Repo and SBL products i.e. one margin call and one marginbooking to cover the net exposure across all legal agreements).

Lombard Risk COLLINE collateral management REPOS/SBLmodule is designed to manage this effectively from both atechnology and functionality perspective.

COLLINE offers a global, cross-product margining solution

offering netting, CCP

and collateral optimisationfunctionality

7/31/2019 Lombard Risk collateral management for Repos and securities borrowing lending

2/2www.lombardrisk.com Managing collateralised trading. Enabling regulatory compliance

Solution sheet

Firms using COLLINE across products will have systemlook & feel consistency and will benefit from existingmarket-leading workflows and reporting capabilities.

New functionality

Some of the new functionality being introduced withinthe COLLINE REPOS/SBL module includes:

Pricing: ability to store multiple prices frommultiple sources. Provide user-configurable pricingrules (which price to apply according tocounterparty product/trade)

Trade valuation: COLLINE will support full Reposand SBL trade valuation including all cash and

coupon accruals and adjustments daily and intra-day

Exposure profiling: ability to forecast exposurecalculations at agreement level and adjust margincall accordingly where required

Tailored user interface and reporting specific toRepo and SBL products

Meeting market requirements

How does COLLINE address these issues?

With rich functionality, designed by businesspractitioners, that includes:

A comprehensive agreement managementdatabase

Automated real-time exposure calculations anddata feed

Asset inventory management Collateral interest statement and statements Configurable Repo/SBL workflow Coupon calculation Exposure and margin management Exposure profiling Fees, rebates and billing MtM pricing (bespoke, rule-based,

multiple prices and sources) Pricing control (validation) Repricing/remarking

Extensive and flexible reporting Reconciliation and dispute management Settlement status workflow Trade valuations (real time)

Trade eligibilities (inclusion/exclusiondetermination)

With this level of detailed functionality, users will have: Configurable views throughout COLLINE,

offering the ability to either view at product level(i.e. Repo only) or consolidated (i.e. across allproducts).

Dashboards Exposure management screen Statement set reporting On a single margin platform With cross-product view

The Lombard Risk solution for collateralmanagement

What you will need:

i) COLLINE: a set of core modules providing featuresand functionality to create an initial marginingplatform

ii) Interfaces: to trading, risk and market data systems.COLLINEs interfacing methodology is tried and testedand incorporates functionality to ensurecompleteness of data at all times

iii) COLLINE Repos/SBL module : to include Repos andSecurities Borrowing and Lending-specificfunctionality as described in this solution sheet

An ASP version of COLLINE is an option for firms withlower numbers of agreements and associated marginingvolumes .

For more information on any of these topics visitwww.lombardrisk.com and/or email

info@LombardRisk.com

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