FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT JUNE 2012
NASDAQ OMX
A clearinghouse’s integrity rests on its
expertise in establishing and enforcing
risk policies.
Robert Waghorne
Senior Vice President, NASDAQ OMX
Derivatives and Corporate Solutions
Technology
Why CCP? Risk Management The 2008 financial crisis and today’s European
debt crisis highlight the vulnerability of the
financial system. By assuming counterparty risk
as a way to assure the obligations of cleared
trades, Clearinghouses -- and their ability to
manage risk – play a crucial role. Risk Management’s main task is to maintain
the integrity of the Clearinghouse, and that is
only possible with an efficient and robust risk
management solution. Also, to establish proper controls,
Clearinghouses should define automatic limits
according to their risk policy and promptly act
on any breaches.
Clearinghouses need sophisticated modeling
and stress testing capabilities to analyze
the size, nature, diversity and volatility of
participating banks’ portfolios and to strike the
right balance between margin and guarantee
fund levels. The objective: a detailed and
comprehensive statistical footprint of the market
and its players. Default Management
New regulations, including the push for
increased clearing of OTC instruments, and
multi-asset trading are two factors increasing
complexity – especially in margining and
default management - and driving the
demand for more sophisticated post-trade risk
management systems.
The alpha on plain vanilla products has been
mined away, and only the fastest and nimblest
are still capturing it. Firms are looking for
other opportunities globally, especially in more
complex product and asset class mixtures.
Clearinghouses need data management and
analytics capabilities that enable them to
understand the risks associated with these new
alternatives.
Clearinghouses that already handle diverse
products are higher up the learning curve than
those that are niche-oriented. Still, there is room
for innovation in areas such as combining cash
and futures positions to offset margin.
Real-time risk monitoring
The Nordic clearinghouse, NASDAQ OMX
Clearing, recognizes the importance of
sophisticated risk management technology
to safely and proactively protect the
clearinghouse and its members from financial
risk.
To increase risk policy automation and to
calculate risk in real-time across a wide range
of asset classes, NASDAQ OMX recently
implemented significant enhancements to
Real-time information is critical, but the speed
of “real-time” data updates can range from
milliseconds to minutes. The definition of “real-
time” has implications for the infrastructure.
Clearinghouses also need to aggregate data
flow from various exchanges and liquidity pools.
New, updated and historical data enables
them to perform sophisticated risk calculations
that determine margin levels and influence the
degree of leverage and amount of capital that
can be committed to positions. Computational
power plays a role. Although clouds and multi-
core servers are getting cheaper, getting the
data to flow at the proper speed and in the right
format can be complicated.
its Genium INET Clearing platform. It also
integrated Sentinel Risk Manager from
NASDAQ OMX to the enhanced solution. Now
NASDAQ OMX Clearing has Europe’s first risk
management system capable of integrating
all asset classes and handling both OTC and
exchange traded instruments. Managers can
monitor risk in real-time using a browser-
based dashboard, customize risk models and
parameters for different types of asset classes
and credit risks.
Increased clearing of non standard instruments
and sophisticated margin models that offer
cross margin benefits means increased
demands on default management policies.
Clearinghouses need robust system tools for
handling incidents and defaults. They also must
demonstrate that they have strategies in place
to resolve default situations, including execution
capacity, liquidity providers and member
commitment.
As part of the default management process,
Clearinghouses must also maintain a financial
waterfall mechanism, including a member
sponsored default fund to safeguard market
stability should a member default.
Sentinel Risk Manager’s integration enables
the setting of limits and alarms so the risk
management team is notified of any problems
straightaway and can take immediate action.
NASDAQ OMX Clearing runs Sentinel Risk
Manager on a single server, so it is inexpensive
and maintains a low footprint. Functionally,
it addresses the enterprise risk needs of a
clearinghouse and supports OTC clearing.
Further, the solution was implemented in about
six months.
CONTACT INFORMATION
Contact Name Mr. Henri Bergström
E-mail [email protected]
Website www.nasdaqomx.com
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