🎯 Project Aim
Implement an automated, daily determination of the Margin Period of Risk for Netting Sets containing OTC derivative trades.
The determination is based on five individual checks:
Before the project was initiated, Nomura assumed all Netting Sets were Hard to Replace, resulting in an elevated MPoR even if this was not the case.
The determination is based on five individual checks:
- Hard to Replace Derivatives
- Illiquid Collateral
- Margin Disputes
- Netting Sets Containing >5,000 Trades
- Margin Call Frequency
Before the project was initiated, Nomura assumed all Netting Sets were Hard to Replace, resulting in an elevated MPoR even if this was not the case.
👥 Stakeholders
Credit Risk, Market Risk, Global Markets, Finance, Model Validation, Methodology, Regulatory Liaison
❗Why It’s Important
The Margin Period of Risk (MPoR) is the time between the last exchange of collateral and the final close-out of positions following a counterparty default.
It typically is 10 days for Bilateral OTC derivatives, which includes time to classify a counterparty default, then time to stop trading, calculate exposures and then liquidate or re-hedge positions.
If the Margin Period of Risk is then assessed to be longer than 10 days, it has the following impacts:
It typically is 10 days for Bilateral OTC derivatives, which includes time to classify a counterparty default, then time to stop trading, calculate exposures and then liquidate or re-hedge positions.
If the Margin Period of Risk is then assessed to be longer than 10 days, it has the following impacts:
- A larger Exposure at Default (EAD) in SA-CCR due to an increased exposure to market volatility without additional collateral being posted
- A similarly heightened Expected Exposure (EE) in IMM, resulting in increased Risk Weighted Assets (RWAs) and Capital requirements
✅ Benefits
The project covers a saving of between $200-300m of Basel III Capital, and a further $200m saved as part of Basel 3.1
🛠️ Tools Used
Python | SQL | Excel | Confluence | JIRA
🧩 My Role
Lead Business Analyst:
- Created the Python based Proof of Concept scripts for each process
- Wrote the Business Requirements documentation 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
- Present developments to stakeholders each weekly update meeting, for UAT sign-off
- Facilitation of discussions relating to the Target Operating Model, SLAs, and Path to Production