Operational Risk Management with Structured Products

Client Objectives.

The client, a multi-national banking institution, was looking to enhance its risk management practices around their Structured Investment Products business line and around instrument management more broadly. Initially, the bank lacked a controlled issuance and execution system that was adequately flexible to minimize operational risk.

The bank’s objectives for the system were:

  • Capture and understand different component assets, with the ability to combine them into single securities for execution and reporting purposes without manual intervention.
  • Define trade and non-trade operations around securities that were unique to each security, without workarounds and manual processing.
  • Represent these securities as individual securities, rather than groups of securities for risk control and reporting purposes.

Why EGAR NoCode?

The client considered a range of solutions, including Matlab (implemented by local vendor Softwell), SAP Limits Management, EPAM Digital Risk Management, and Systematica from GCS (local vendor).

  • Client chose EGAR NoCode over Matlab/Softwell due to significant custom development and implementation time from competitor— Matlab custom model development was quoted at 9-12 months alone and required intensive client involvement. ENC full implementation was 9-12 months.
  • Client chose EGAR NoCode over SAP Limits Management due to value and flexibility. SAP minimum proposed contract was over $1.5M and required an extensive team of skilled IT to maintain, without no- code flexibility. ENC delivered better value with much simpler maintenance and no vendor lock-in.
  • Client chose EGAR NoCode over EPAM Digital Risk Management due to EPAM’s lack of a web-interface (while delivering good flexibility) for seamless internal operation and poor value—the project was quoted at around $1.8M. ENC delivered a powerful web interface and IT management capability, alongside leading flexibility (ENC supports any scripting language).
  • Client chose EGAR NoCode over Systematica (finalist) due to EGAR NoCode’s extensive lead in functionality. Only ENC delivered a powerful web interface and open-source vendor risk mitigation. ENC is maintainable entirely by clients and source code is delivered to clients. Systematica also relied on an older MS SQL Server DBMS that limited product flexibility and long-term enterprise worthiness.

How we solved the problem ?

With the EGAR NoCode platform, we delivered a structured product management solution that fully mitigated operational risk through the client’s structured product practice. This solution consisted of the following:

• Templates representing products. each template represents a single product, which can consist of any combination of instruments. These templates can then be filled with specific assets to create securities that are integrated with other systems (execution, reporting, limits, risk management) as individual securities, mitigating operational risk arising from manual reporting, cumbersome limiting, and dual-market risk monitoring of a single security.

• STP for each product. Each template (structured product) received its own execution process. This mitigated one of the client’s main known operational risk: manual execution errors and inability to schedule/time operations.

• Integrated modeling. The client moved away from the previously insecure and risk pricing process centered around excel, with each template linked to models designed to price specific products and uniformly available across their stack via API.

• Independent control. ENC enabled the client to maintain products without coding, mitigating concerns that staff turnover or vendor practices would impact their operations.

How the Client Benefited from ENC?

  • Reduction in team size dedicated to in-house maintenance, in terms of FTE, by 61%
  • Recruitment of core team member to maintain products (driven by ability to hire more readily available talent) dropped from 1.5-2 month to 1 month
  • Mitigation of downtime risk upon employee resignation or firing. Project time lines with ENC were delayed 5-10% instead of the projected 40% with a classical solution or in-house dev. This is driven by faster onboarding and easier substitution of human resources.
  • Reduction in product operations technical ownership cost by 79%
  • Quantity of maintainable products/instruments with equivalent team and acceptable OpRisk levels increased by 400%

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