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triResolve contributes to the success of ISDA’s Asia Pacific Collateral Management reconciliation pilots


In January 2011, ISDA published the Asia Pacific Collateralized Portfolio Reconciliation Memorandum of Understanding (MoU) which was the result of two pilot programs sponsored by the ISDA Asia Pacific Collateral Management Operations Working Group. While the G-14 institutions have already committed to and adopted regular proactive reconciliation standards as a result of regulatory discussions, Asian institutions did not have an obligation to conform to those commitments. Nevertheless, there was strong interest in the Asia Pacific Region to do so. By signing the MoU, institutions adopt the standards outlined in the document which include weekly reconciliation at a minimum, more frequently if they agree bilaterally.  There are no restrictions on the reconciliation approach. Firms may carry out reconciliation using automated solutions provided by a vendor, in-house solutions or spreadsheet. However, based on the pilot run results, the MoU encourages firms to use automated solutions.

In the first pilot, 9 regional and global firms participated over a three-month period.  They all experienced significant benefits including a reduction in time spent on reconciling and researching differences, a match rate that increased to 98.7% by the end of the pilot, and decreased mark-to-market differences.  The second pilot included 19 regional and global firms reconciling for a three-month period, and the results were similar. Of the 96 reconciliations performed, 86 were performed via an electronic service vendor and 10 were performed via spreadsheet.

TriOptima’s triResolve platform served as the electronic service vendor in both pilots. One of the conclusions of the Asia Pacific Portfolio Reconciliation Memorandum of Understanding pilot run (phase 2) – review (Phase 2 Pilot Run Review) was that, “firms applying electronic reconciliation enjoy a strong advantage over those applying spreadsheet.”

The graph below, from the ISDA Phase 2 Pilot Run Review, illustrates the dramatic results achieved by regular, proactive portfolio reconciliations among the 19 testing institutions. These phase 2 results are completely consistent with those of the pilot phase 1 observations. The amount of time spent on average (including both electronic and spreadsheet methodologies) reconciling was reduced 50% from 55 minutes to 28 minutes per reconciliation.  The matching rate went from less than 94% to 98.68% over the 3 month period.  And the number of MTM differences greater than $1 million decreased from more than 50 to less than 30 per reconciliation.


Source: ISDA Asia Pacific Portfolio Reconciliation Memorandum of Understanding pilot run (phase 2) – review
Source: ISDA Asia Pacific Portfolio Reconciliation Memorandum of Understanding pilot run (phase 2) – review


Reconciling proactively via an electronic platform or exchange of spreadsheets will significantly reduce operational risk and counterparty credit exposure as well as facilitate the efficient exchange of collateral.  However, as the graph below from the Phase 2 Pilot Run Review reveals, those participants using the triResolve automated platform saw the average time spent on a reconciliation decline from 55 minutes to 25 minutes, while those participants exchanging spreadsheets experienced a decline from over 100 minutes per reconciliation to approximately 55 minutes per reconciliation.  While both methodologies resulted in improvements when reconciling proactively, using a spreadsheet methodology took twice as much time as reconciling on the automated triResolve platform.

 

Source: ISDA Asia Pacific Portfolio Reconciliation Memorandum of Understanding pilot run (phase 2) – review
Source: ISDA Asia Pacific Portfolio Reconciliation Memorandum of Understanding pilot run (phase 2) – review


Based on the analysis of data for average time spent reconciling by the pilot participants and the clear benefits of an electronic solution, the ISDA MoU concludes ”time spent on reconciliation using automated solutions was shorter than the time spent using other approaches, therefore, firms are encouraged to use automated solutions.”  

With over 100 firms using triResolve globally and exchanging information on 6.6 million trades regularly, triResolve stands as the industry leader in proactive reconciliation and counterparty exposure management.



Click here to read the full MoU.
Click here to read the full pilot run (phase 1) report.
Click here to read the full pilot run (phase 2) report.
 







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