eClerx, an outsourcing firm in financial markets, has launched a solution that enables financial institutions to mine information contained in the International Swap Dealer Association (ISDA) Credit Support Annex (CSA) documents for managing credit and legal risk.
Legal documents regarding OTC derivatives are formatted in faxed PDFs or images in the ISDA CSAs so that extracting information is often complicated. The solution will extract the information from the ISDA CSAs so that financial institutions can make more informed decisions around managing the legal and credit risks as well as optimize cash and collateral movements.
The industry has been struggling with the complexity of screening the data in their ISDA CSA documents, according to the company. Regulatory mandates, such as Basel and Dodd Frank, along with increased demand for collateral movements due to OTC clearing, are the main reasons eClerx came up with the solution. In addition, financial firms can use the pre-trade data to make sure their derivatives are priced correctly.
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“The solution itself is a combination of people, to actually interpret the legal agreements and the structure, and technology, to capture the information in a predefined data model, then depending on what our customer requirement is, we can serve that information in different manners,” said Mahesh Muthu, associate principal of client engagement in financial services at eClerx in an interview with Wall Street & Technology.
According to Muthu, every institution has a slightly different issue with the details in legal documents pertaining to OTC derivatives. A part of the solution is to create a data model to determine the customer’s specific needs with interpreting regulation.
For banks that have already captured legal information from the annex in their system, eClerx creates a reconciliation model to compare the legal document to what is already captured. During the process, eClerx found a 65% mismatch while comparing ISDA CSAs to versions in client systems.
“We do business with 8 of the top 10 global investment banks. We were hearing consistent themes from customers that they needed to rip out this information from the agreements,” said Muthu. “Every bank had a slightly different reason for why they needed information. It was really the combination of it all that lead us to design the solution that it is today.”
The new ISDA CSA Document Risk Review solution will allow firms to utilize that information through decision analytics based on metrics and an analytics suite. Internal teams such as legal, credit valuation adjustment (CVA) trading desks and treasury can utilize the tool set and processes to focus on day-to-day decisions with more accurate, detailed dataset, the company said.
eClerx focuses on reference data, operations, risk services, and ecommerce space in the capital markets domain.
Zarna Patel is a staff writer for InformationWeek's Financial Services brands, which include Bank Systems & Technology, Insurance & Technology and Wall Street & Technology. She received her B.A. in English and journalism from Rutgers University College of Arts and Sciences in ... View Full Bio