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Overview
Bilateral Risk Management offers a calculation service for bilateral portfolios – that together with SEF partners, results in an automated, on demand, execution service – of clearable instruments that will, as a set, minimise for each counterpart their bilateral exposure to each other, without change in either market risk or portfolio value for either counterpart.
The material clearable risk in the portfolio, whatever asset class it belongs to, is removed from the portfolio, and re-established with a central counterparty (CCP), where it receives full multilateral netting.
For more information please contact us either by phone or email.
Uncleared trades report clearable risks
Bilateral trades may not be clearable but, by dint of being modelled, they can be decomposed into simpler risks such as delta and vega. Each of these risks can be represented by a trade, and for risks such as delta, these risk trades are currently clearable. This ability to clear risks not trades forms the basis of our optimisation
Moving those risks to clearing can reduce bilateral margin significantly
Each clearable risk can be removed bilaterally and re-instated in clearing via a trade package output by our calculation service. Each trade package is cash-flow and risk neutral but lowers bilateral margin for both sides.
We can find a fair solution even if risks differ
Even if trades have been reconciled between both counterparties, there will still be risk differences due to differences in market data or modelling. The BRMS calculation service uses a sophisticated optimisation that finds a Pareto optimal solution for each run - the best each side can achieve while guaranteeing the same proportionate reduction in margin.
A low-touch, automated solution allows volume, daily use, and scales without limit
The BRMS calculation service consumes standard CRIF file and swiftly provides risk and cash-flow neutral packages that can be directly uploaded into SEFs and clearing house feeds. Moreover, these bilateral packages are fair to each side and move counterparty risk to central clearing, minimising barriers to automatic daily execution and scaling without the increase in complexity inherent in multilateral solutions.