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Risk Management

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Creditex delivers confirms for credit default swaps in FpML; ISDA outlines vision for automated processing of OTC derivatives; Sophis unveils new version of risk system for hedge funds.

Creditex " a global electronic trading and information platform for credit derivatives " is providing broker confirms for credit default swaps in FpML (Financial products Markup Language). Creditex maintains it's the first inter-dealer broker to offer such a confirm service, which is intended to detect and resolve trade-entry errors more quickly and efficiently. In the last several months, Creditex worked closely with the middle and back offices at several dealer institutions to develop its broker-confirm service.

The delivery of broker confirms in FpML format will allow banks to fully automate reconciliation processes thereby reducing operational risk and transaction costs, according to Creditex. Through participation in the ISDA (International Swaps and Derivatives Association) Operations Broker Confirm Subgroup, banks have created a vision for automated-trade-reconciliation that depends on electronic delivery of broker confirms in FpML format. FpML is the ISDA-sponsored standard for electronic exchange of trade data. Creditex chaired the FpML Credit Derivatives Working Group, which developed the FpML standard for the credit default swap from inception.

The International Swaps and Derivatives Association (ISDA) outlined its vision for automating the processing of over-the-counter (OTC) derivatives transactions by 2005 in a consultative paper released in London. The timeline calls for automated trade verification, confirmation and legal execution for interest-rate derivatives, credit derivatives, equity derivatives, FX derivatives and commodity derivatives by June 2005.

ISDA states that automation of trade processing will reduce operational risk by facilitating straight-through-processing, bi-lateral settlement reconciliation and collateral matching within agreed upon timeframes. For vanilla OTC derivatives, the goal is to electronically match and affirm (legally execute) all inter-dealer transactions on trade data (T+O). ISDA envisions trade confirmation for OTC vanilla products occurring on T+1, and for complex manual transactions as soon as practicable, but no later than T+5.For further information, go to https://www.isda.org

Sophis released VALUE v2.1, a one-stop solution that provides advanced cash management and reconciliation capabilities for hedge funds and integrated VaR (value-at-risk) calculations. The new version of VALUE contains additions for alternative investment and strengthens VALUE's position as a complete risk-management onsite solution available for hedge funds, the company states. Among the key features are performance-fee-calculations with flexible management of funds' subscriptions, permitting hedge funds to calculate an accurate net-asset-value (NAV).

Other major enhancements include the generation of cash statements with trade details per account, allowing hedge funds to manage their cash positions with multiple prime brokers. Automatic reconciliation has been enhanced through the diversification of file formats and exchange-methods. Because hedge funds requested customized interfaces with third parties, the system links with major prime brokers (including Goldman Sachs, Morgan Stanley, Deutsche Bank, Credit Suisse First Boston and Fimat), fund administrators (CITCO, IFS) and service providers.

Nationwide, a large insurance and financial-services company, upgraded its Principia System license to incorporate recently enhanced credit derivatives capabilities. The new component expands Principia's credit derivatives product coverage beyond asset swaps and total return swaps to include credit default swaps, default digital swaps, options on credit default swaps, cancelable credit default swaps and nth-to-default basket swaps. Nationwide has been a user of Principia from Principia Partners LLC since 1998.

Carreker Corporation rolled out an anti-money-laundering (AML) application as an addition to CORE (Carreker Online Risk Expert), its risk-management-platform for financial institutions. CORE AML is designed to help banks filter transactions and accounts against industry and local blacklists. The software filters transactions and accounts in both batch and real time using advanced detection techniques. It combines transaction data from all types of payments with sociological, demographic, product and service information to produce behavioral and risk profiles for each account.

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