The Over The Counter (OTC) Derivatives market is underpinned by bespoke bilateral agreements that govern the terms of trading.
The importance of this market to the global economy came into sharp relief during the financial crisis when the complex web of interdependencies and in particular counterparty risk was exposed by the failure of Lehman Brothers and near failure of a number of other key banks.
One of the key aspects of this is in unlocking the contractual terms tied up in millions of paper-based contracts, terms which are designed to remove legal uncertainties and provide mechanisms to mitigate counterparty risk.
Trading environments require up-to-date, accurate information while regulation has forced financial institutions to provide better protection against counterparty risk and increase the transparency of their contracts.
Banking requirements vary widely from trading agreements through to orderly crisis resolution, client segregation and protection against proprietary trading.
Unreliable data continues to cost banks Millions in mis-priced trades, dispute resolution and ongoing operational effort.
Lyncs also provides our customers with the tools to respond rapidly to shock market events such as the financial crisis and now COVID-19. The economic impact of such events requires rapid access to accurate data such as ratings triggers, termination events and negative interest rates. Without a proper solution people reach for their contracts – such throw-away activities tend to be costly.
Lyncs supports regulatory data management ranging from record keeping: Bank Recovery & Resolution Directive (BRRD), Qualified Financial Contracts (QFC) through to Margin Reform (legacy, variation and initial margin) as well as Benchmark (LIBOR) remediation.
Lyncs is unique in its ability to provide a data store that can feed your operational systems (risk, collateral, trading) that also meets the needs of regulatory projects.
Solution: Introducing Lyncs
Lyncs is offered as a complete service, combining our automated data collection technology, domain expertise and rigorous capture, review and quality assurance to provide our clients with certainty of outcome. The service can scale from small engagements with clients looking for a turn-key solution, through to enterprise wide installations. Many solutions available on the market offer only a subset of any clients needs; we can cover them all. Our platform can be used to view your one-off, but highly important documents alongside your high volume industry standard agreements.
A purpose built data extraction platform capable of processing any document
Unique validation and data capture features along with side by side data linkage provide trusted data
Consumable data can be analyzed using beautiful, interactive reports, or clients can overlay business intelligence tools on the reporting database for complete flexibility
A purpose built Application Programming interface provides simple but powerful integration, alongside schedule data exports
Putting it all together – ISDA Collateral toolkit, Common Domain Model, Clause Library, Smart Contracts. Back in 2013, Paul Kelly and I documented the state of negotiated ISDA documentation and the challenges it posed for the negotiation and onboarding processes as well as the high cost to derivatives participants – see Million Dollar Spreadsheet. Winding Read more about The future of derivatives, securities lending and repo contract flows[…]
The ISDA Common Domain Model (CDM) is a digital representation of the events and actions surrounding derivatives trading, a standardisation initiative that ISDA has been working on for a few years. Version 2.0 of the CDM included an initial representation of the ISDA Credit Support Annex, and this caught our attention at Logical Construct. I’ve Read more about ISDA Common Domain Model: Get In Tune[…]
Better risk management preparations in light of COVID-19 Shock The economic fall out from the global pandemic is already being felt in a number of places in the financial sector, but the true extent is still largely hidden with governments doing their best to prop up economies. A glimpse of the contractual risks in Read more about Derivatives Contract Risk[…]
The ECB recently published its assessment methodology for banks using the internal model method (IMM) for calculating counterparty credit risk and credit valuation adjustment risk. Given the very large differences IMM has on regulatory capital versus standard methods this is a useful guide for those looking to adopt IMM but also those already using it Read more about Regulatory Capital / IMM[…]
The frameworks of standard documentation for OTC Derivatives, Securities Lending and Repurchase Agreements have been tested by a succession of financial crises since they were widely adopted in the 1990’s. The Asian currency crisis, the Russian debt default, the Global financial crisis and the European sovereign debt crisis have all forced financial services firms back Read more about Know Your Master Agreements – be prepared for the next crisis[…]
Way back in 2013 I wrote an article in FX-MM magazine (no longer operating) about the ‘false economy of the million dollar spreadsheet’. The article was inspired by the panic that happened across the financial markets in the wake of the financial crisis. Banks poured lots of resources (and expensive legal review) into pulling out information from Read more about Is your contract analysis tool just a new version of an expensive spreadsheet?[…]
Stop talking, start doing! Logical Construct are pleased to launch a new LIBOR module designed for organisations looking for a low-cost solution to automate the first stage of benchmark reform contract analysis. Recent market surveys indicate a large number of organisations are yet to start tackling benchmark reform, with many completely unsure of the scale Read more about LIBOR-Lite Module Launched – Low Cost Start To Benchmark Reform[…]
The LIBOR transition is one of the broader reaching changes to affect the financial services industry in recent years due to the wide range of products it affects. As part of that process many existing financial products offered to clients will need to change, so along with the obvious costs and financial and operational risks Read more about LIBOR transition: The FCA is thinking about conduct risk – are you?[…]
While uncertainty still remains about what the migration path from LIBOR, EURIBOR and other rates affected by the reform really is, there is no doubt that change is inevitable. The one part that is certain therefore, is being able to identify which of your contracts are affected: They reference one of the rates; They will Read more about LIBOR Module[…]
Document remediation projects are not new. Anyone working in Capital Markets in recent years can probably describe the steps involved as they tend to be similar each time. Recent battle scars in the derivatives world include Uncleared Margin Reform (UMR) where large volumes of derivatives documents had to be amended – first for variation margin and more Read more about LIBOR Benchmark Reform and Regulation in Lyncs[…]