🎯 Project Aim
Cross Margining Netting Agreements (CMNA) are agreements that cover multiple sub-agreements, that enable cross netting of positions and collateral.
For example, a client could have an ISDA Master Agreement with Credit Support Annex containing OTC derivative positions, that has a defined “Independent Amount”.
Within the same CMNA, is a Prime Brokerage agreement, that has collateral in excess of it’s requirement.
As the two agreements sit within the same CMNA, the excess collateral from the PBA, can be used to cover the deficit in the ISDA MA/CSA.
The project aim was to determine a methodology that would enable a “synthetic transfer” of collateral between agreements, to ensure that collateral called from the client, would cover each of the agreements’ individual margin requirements.
The reason a collateral transfer was required in the first place, was that we call the client once for all requirements across all agreements, so need an apportioning logic to shift the collateral between agreements.
For example, a client could have an ISDA Master Agreement with Credit Support Annex containing OTC derivative positions, that has a defined “Independent Amount”.
Within the same CMNA, is a Prime Brokerage agreement, that has collateral in excess of it’s requirement.
As the two agreements sit within the same CMNA, the excess collateral from the PBA, can be used to cover the deficit in the ISDA MA/CSA.
The project aim was to determine a methodology that would enable a “synthetic transfer” of collateral between agreements, to ensure that collateral called from the client, would cover each of the agreements’ individual margin requirements.
The reason a collateral transfer was required in the first place, was that we call the client once for all requirements across all agreements, so need an apportioning logic to shift the collateral between agreements.
👥 Stakeholders
Credit Risk, Global Markets
❗Why It’s Important
As the Collateral delivered by the client to cover the requirements across all agreements covered by a CMNA is called for once (rather than for each agreement individually), this results in multiple agreements having no collateral for exposure calculations (under-collateralised), and the agreement that received the collateral far in excess of its requirements being severely over-collateralised.
In addition to this operational challenge, the system responsible for capital calculations only had regulatory approval to generate exposures for each agreement individually, so did not yet have the ability, or permission, to calculate netted exposures for CMNA agreements.
Ensuring that agreements are correctly collateralised results in more accurate exposure calculations, and in most cases (i.e. except for the agreement receiving the collateral), will reduce in lower capital requirements.
In addition to this operational challenge, the system responsible for capital calculations only had regulatory approval to generate exposures for each agreement individually, so did not yet have the ability, or permission, to calculate netted exposures for CMNA agreements.
Ensuring that agreements are correctly collateralised results in more accurate exposure calculations, and in most cases (i.e. except for the agreement receiving the collateral), will reduce in lower capital requirements.
✅ Benefits
Accurate Exposure Metrics and Capital Calculations, correcting for under-collateralisation (in ISDA MA/CSA) and over-collateralisation (in PBA).
🛠️ Tools Used
Python | SQL | Excel | Confluence | JIRA
🧩 My Role
Lead Business Analyst:
- Created the Python based script determine the methodology to be applied to generate the synthetic transfers
- Wrote the Business Requirements documentation for the end-to-end process in Confluence, that were then converted to Functional Specifications in JIRA
- Perform QA checks on each development step, to check that delivery passes the defined Acceptance Criteria
- Presentation of delivered output, with explanations, to Credit Risk, and GM, for approvals, ahead of release
- Documentation of the process for Production Support to inherit the process for ongoing BAU