Solution sheet

Lombard Risk business and risk experts

REPOS and SECURITIES BORROWING and LENDING using COLLINE

explain:
Introduction
The Lombard Risk COLLINE collateral management system is being extended to support a market-leading, best practice margin process for REPOS and SECURITIES BORROWING and LENDING products: COLLINE REPOS/SBL module. REPOS: are products traded under a Global Master Repurchase Agreement (GMRA), where securities (bonds) are loaned on a bilateral basis versus cash. At a given point in time the bonds and cash are returned to the original owners (hence the term repo aka repurchase). During the term of a repo trade, the value of the securities and cash legs will fluctuate (cash will accrue interest and securities are subject to coupon accrual and MtM price changes). The difference between the valuation on the security and cash trade legs represents exposure to one party. The net exposure of all open trades in a bilateral repo portfolio forms the basis of the margin call. SECURITIES BORROWING and LENDING (SBL): is the lending or borrowing of bonds or equities and is a similar trade structure 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 separate legal agreements (GMSLA standard) and tend to have different ownership rights There may not always be a cash leg attached to the securities loaned There may be multiple margining/booking methods employed within a master agreement

widely believed that this will force new participants into the repo market to source collateral as cheaply as possible to meet their OTC/CCP margin obligations. Globally we anticipate an influx of new repo participants, who will require margining facilities under their new GMRA bilateral relationships. Cross-product margining Collateral management has traditionally been managed in product silos meaning one product, one margin system. Firms are increasingly looking to consolidate their margin views and exposure management processes on to a single platform because: The volume of collateralised trades is increasing to minimise risk post financial crisis Regulations are making managing collateralised trades more difficult with home-grown, spreadsheet solutions i.e. coping with CCP, clearing, resolution dispute management 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 to be considered (e.g. offset exposure across OTC Derivatives, Repo and SBL products i.e. one margin call and one margin booking to cover the net exposure across all legal agreements). Lombard Risk COLLINE collateral management REPOS/SBL module is designed to manage this effectively from both a technology and functionality perspective.

The Repo and SBL markets are estimated to be valued >$12trillion across US and Europe alone. Established Repo markets are also active in Japan, South America and China and further 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 regulation equivalents) will demand increased levels of higher quality collateral within the OTC derivatives/CCP market, and it is

COLLINE offers a global, crossproduct margining solution offering netting, CCP and collateral optimisation functionality

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Managing collateralised trading. Enabling regulatory compliance

Solution sheet

Firms using COLLINE across products will have system look & feel consistency and will benefit from existing market-leading workflows and reporting capabilities. New functionality Some of the new functionality being introduced within the COLLINE REPOS/SBL module includes:
Pricing: ability to store multiple prices from multiple sources. Provide user-configurable pricing rules (which price to apply according to counterparty product/trade) Trade valuation: COLLINE will support full Repos and SBL trade valuation including all cash and coupon accruals and adjustments daily and intra-day Exposure profiling: ability to forecast exposure calculations at agreement level and adjust margin call accordingly where required Tailored user interface and reporting specific to Repo and SBL products

Extensive and flexible reporting Reconciliation and dispute management Settlement status workflow Trade valuations (real time) Trade eligibilities (inclusion/exclusion determination)

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

The Lombard Risk solution for collateral management

Meeting market requirements

How does COLLINE address these issues? With rich functionality, designed by business practitioners, that includes: A comprehensive agreement management database Automated real-time exposure calculations and data 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 For more information on any of these topics visit www.lombardrisk.com and/or email info@LombardRisk.com What you will need: i) COLLINE: a set of core modules providing features and functionality to create an initial margining platform

ii) Interfaces: to trading, risk and market data systems. COLLINEs interfacing methodology is tried and tested and incorporates functionality to ensure completeness of data at all times iii) COLLINE Repos/SBL module: to include Repos and Securities Borrowing and Lending-specific functionality as described in this solution sheet An ASP version of COLLINE is an option for firms with lower numbers of agreements and associated margining volumes.

www.lombardrisk.com

Managing collateralised trading. Enabling regulatory compliance