OTC Derivatives Best Practice
The Client, a Tier 1 Investment Bank, approached LP Squared to help them in the creation of a white paper outlining industry Best Practice for the trade booking and collateralisation of 3rd party and group affiliate OTC Derivatives.
Assignment - Delivered
The documentation and proposals were created specifically with the Client in mind and considered industry convention, regulatory requirements, internal policies, balance sheet impact, capital and liquidity implications, operational efficiency and current infrastructure.
The proposals documented in the Best Practice document included:
Operating Model – roles and responsibilities, interfaces and hand offs
Initial Setup – ISDA, CSA and SLA documentation
Trade Booking Model – structure, bookings and settlement (full information mapping)
Collateralisation Model – coverage, collateral type, collateral currency, Thresholds/MTAs and call frequency
Accounting Policy – accounting entries, P&L and Balance Sheet Netting
Reporting – operational, regulatory and management information
Controls & Governance – approvals/sign off and segregation of duties
Importantly, LP Squared tailored the documentation to highlight the key implementation considerations for the Client.
Result – Value added
LP Squared’s team of SMEs delivered the white paper on time, within the agreed budget and to the Client’s satisfaction:
The Client used the Best Practices documentation to implement an intercompany OTC Derivatives Margin Model across its entities globally
Optimally margined OTC exposures lead to reduced risk weighted assets and an optimised capital requirement