Data Extraction and Netting Data

Client

The Legal department of a global investment bank.

Issues that we helped identify

The client required assistance in determining the applicability of close-out netting to OTC derivatives transactions documented under long-form confirmations (LFC) (i.e. trades where no ISDA master agreement exists between the client and its counterparty).

The client had identified a significant population of counterparties/transactions to which close-out netting was not being applied in determining risk and capital metrics.

How did we help our client?

  • Document discovery: we conducted an extensive inventory of the client’s trade booking and confirmation generation systems to identify the existence (or absence) and the form and content of relevant transaction confirmations
  • Document review: we analysed the terms of in-scope trade documentation to identify and record the form of close-out netting language (if any) included
  • Legal liaison: results were processed with the client’s legal team to determine whether close-out netting is applicable
  • Systems remediation: where necessary, we updated client document management and static data systems to ensure accurate netting data was recorded to feed downstream risk management processes
  • Process remediation: we assisted in the creation of revised processes and risk management policies intended to prevent future build-ups of inaccurate or incomplete data

How did the project benefit our client?

Over the lifecycle of the project, we investigated over 16,000 transactions across in excess of 800 counterparties.

The investigation and remediation exercise undertaken by us delivered the following enhancements to the client:

  • Clearer understanding of current trade confirmation practices
  • Enhanced netting data within core risk systems
  • Improved regulatory capital calculations resulting in direct cost savings
  • More robust processes to ensure better real-time maintenance of netting data

Project Time and Resource

We were engaged on the project for eight months.

Over the course of the project, three of our senior consultants (with overall oversight supplied by one of our SME’s) were deployed.

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