The OTC Space spent time talking to Neil Murphy, business manager at CME Group’s TriOptima, about their recent announcement with AcadiaSoft on the automation of interest calculations and payments. 

The OTC Space spent time talking to Neil Murphy, business manager at CME Group’s TriOptima, about their recent announcement with AcadiaSoft on the automation of interest calculations and payments. 

Bill: Hello Neil, what’s the background to the announcement on interest payment processing?

Neil: As collateral managers will know, each CSA contains provisions which determine how interest on cash balances is calculated. The CSA will define the calculation period and reference rate, each party then uses these to calculate what they think the interest amount will be.

Bill: That sounds easy – they both have the same terms in the CSA, what’s going wrong?

Neil: Most firms choose to perform these calculations at the beginning of the month and send statements by email to each other. Where differences arise – due to position and/or rate differences – is when both firms then have to reconcile their calculations on a line by line basis before agreeing to the payments. This is manual and takes time, potentially leading to bottlenecks and delays in completing the interest matching process. It’s an opportunity to improve this situation which we decided to act on.

Bill: What’s the new approach within the TriOptima platform?

Neil: We decided there were two problems, the first relating to the communication of the calculation data between parties. We enable clients to leverage a standardised data format for exchange of calculation data – capturing both the inputs to the calculations and the resulting interest amounts, and then allow transfer of interest calls via AcadiaSoft’s MarginManager platform (similar to margin calls). Secondly we needed a tool to help clients reconcile collateral & interest data in order to resolve differences before agreeing to interest payments.

Bill: What happens with that data?

Neil: Once our platform has statements from both sides, we perform an automated reconciliation to find differences. We include a series of tolerances which identify the underlying differences requiring investigation, looking for variance in the portfolio or the reference rates being used. Users can see the comparison and then communicate bilaterally to decide on resolution. The new features mean firms can work from a good quality reconciliation and focus on structural & calculation differences, saving time on the preparation and comparison of the data.

Bill: What did you see happening during the lock-down to collateral teams?

Neil: It seemed to be two stories. Firms with good automation could rely on system rules to handle incoming and outgoing calls to cope with increased volumes. Firms with no automation or basic systems found themselves working until 11pm at night to keep up. The increased volumes highlighted that there are many steps in collateral management that can be automated, including tasks such as call communications and asset selection & settlement.. We think automation can be setup to identify ‘issues’ which potentially exceed tolerances and require human intervention & approval, , leaving the system to handle standard tasks within defined limits. One area which is gaining increasing focus for automation is collateral settlement, with an increasing number of clients opting to automatically instruct payments via SWIFT. This is something which will increase further as firms prepare for UMR.

Bill: UMR has been moved – how have firms reacted?

Neil: Phase 5 firms who already had a compliance project in progress have kept going, in order to complete their plans and be operationally ready. Phase 6 firms have mainly suspended or slowed their projects to spend time checking their AANA and IM thresholds, while continuing to review their systems options, and assess wider operational impact. Overall, we think firms are using their time wisely. Some firms are completing what they call a ‘soft go-live’ whereby they are road-testing their systems & operational processes by calculating IM on live portfolios – even though they aren’t required to be compliant yet.

Bill: Thanks for the update Neil.

Click here for more information on TriOptima offering, as part of CME Group.