Services are only as good as the understanding, the depth of experience and technology that they are based on. This is particularly true in the OTC derivatives market where the regulators are pushing for more and more risk mitigation through greater transparency, increased risk management, and electronic trading to reduce exposures. 

Fair value accounting requirements and corporates voluntarily entering into margin arrangements in return for better execution prices creates a need for them to understand in huge detail exactly what is the cost of the different types of counterparty credit risk” (since fair value accounting and margin arrangements are not related). This creates a need for corporates to understand in huge detail exactly what is the cost of the different types of counterparty credit risk, such as DVA (debit valuation adjustment), CVA (credit valuation adjustment) and MVA (margin valuation adjustment), as well as the FVA (funding valuation adjustment). To calculate this is very complex requiring huge computing power using sophisticated models and data handling techniques to get anywhere the ‘real picture’.

There are a small number of risk mitigation solution providers of different kinds in the OTC derivatives market. The leader is TriOptima, part of the NEX Group, who have specialised in lowering costs and mitigating risk in OTC derivatives markets for the last 15 years, starting with triReduce - a portfolio compression service-  in 2002, then triResolve - an OTC derivatives portfolio reconciliation service - in 2007, and in 2016 launched triCalculate to provide XVA risk analytics. 

TriOptima’s web based technology

TriOptima have always used the web to provide their solutions. Other key elements in their technology which underpin all their services are:

• Non-prescriptive data formats, making it easy for users simply to upload their data in their own format
• Easy submission of the OTC deal and portfolio data, either manually via a GUI (graphic user interface) or fully automated via SFTP (secure file transfer protocol)
• Extensive range of modelling methodologies and functionality:

TriCalculate XVA service

triCalculate deploys a very different approach with technology developed for the gaming industry to solve the XVA challenge with speed and precision. Using the Probability Matrix Method for first determining the possible future values of the portfolio using GPUs (graphics processing units), complex Monte Carlo simulations can then be run rapidly using a standard CPU (computing processing units) approach. 

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Because of the speed of the process, triCalculate generates 100K simulations as a standard, whereas other systems normally restrict calculations to 1-10K simulations, since the process otherwise takes too long. This means that simulations in TriCalculate can be run throughout the day, rather than overnight, and also results, TirOptima claim, in far more precise results.

Mireille Dyrberg, COO of TriOptima and head of triCalculate, commented, “I am extremely proud of our solution’s innovative and efficient approach to a highly complex problem. Solving our clients’ challenges in a way that is seamless and non-resource intensive is what we set out to do.”

triCalculate XVA service for corporates

Corporate users of OTC derivatives are under increasing pressure to ensure that their derivatives are properly valued over the entire life of the deal. Management, accountants and auditors need accurate fair value, which requires the ability to determine CVA and DVA for quarterly, semi-annual and year end reports in order to meet the IFRS 13 or ASC 820 rules for capturing default risk. Auditors are also focusing on FVA as an important tool for firms to capture the true costs of their trades.

The triCalculate solution provides a secure, web-based service for these complex calculations across all asset classes.

An important feature of triCalculate is that it enables corporates to calculate the cost of XVA measures priced into trades by the banks when suggesting a new deal, and whether the total cost is a true reflection of the risks inherent in the possible new trade.

Addition of MVA functionality 

This week TriOptima added MVA functionality to their triCalculate service to address the needs of firms subject to the new initial margin rules for non-cleared OTC derivatives. While the posting of initial margin has always been a part of the central clearing process, the new rules mandate the posting of initial margin for non-cleared OTC derivative trades are being phased in from this year through 2020 and will affect most market participants. Also, some corporates which are not or not yet subject to these requirements are voluntarily entering into margin agreements with the banks, so as to benefit from better execution prices.

triCalculate MVA will enable market participants to:

• calculate the initial margin for non-cleared derivative trades under the ISDA Standard Initial Margin Model (ISDA SIMM®) that has been widely adopted as an industry standard methodology
• generate independent trade and netting set level XVA calculations as well as risk sensitivities. They can access the platform to check the MVA implications of a trade before execution without delaying trading activity.

Charges and corporate users

TriOptima charge is quarterly in arrears and is based on the number of nettings, deals, users and other factors. Currently, corporate users of triCalculate, which has only been available for a short while, include automobile manufacturers and energy companies.

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CTMfile take: It is the depth of understanding, functionality and technology in TriOptima web services solutions that impresses. triCalculate will enable corporates to carryout vital analyses intra-day and really mitigate their risks in derivatives including being able to differentiate between the OTC derivatives offers they receive.