Algo Collateral Newsletter

The purpose of the 4.8 Documentation Project was to retire all old documents from the Support Site and incorporate them into the 4.8 Online Help. In the process, all documents were thoroughly reviewed and examples added so we advise you to download the latest version of the Online Help as soon as possible. In addition, we have extracted documents on individual topics from the Online Help and placed them on the Support Site for easy reading. These are easily recognizable as they are all prefixed by the word HELP.

These are the topics you will find individually covered:

• HELP_Cash Management
• HELP_Workflow Configuration
• HELP_Reconciliation
• HELP_Rehypothecation
• HELP_Staging
• HELP_Static Data
• HELP_Technical Document
• HELP_Upfront Collateral
• HELP_Security and Roles
• HELP_CapAd
• HELP_Repo Margin
• HELP_Timings and Holidays
• HELP_Legal Interface
• HELP_Operational Guidelines Framework

These documents are constantly being improved so if you have any comments, please do not hesitate to contact Elisa Nordstrom (enordstrom@algorithmics.com, +44 (0) 20 7382 0126) or Ellen Swabey (eswabey@algorithmics.com, +44 (0) 20 7382 0127).

This past June, the Algorithmics Risk Conference featured a panel discussion, Achieving Best Practice in Collateral Management, which focused on practical issues facing institutions implementing a process under Basel II and the Sarbanes-Oxley requirements. Industry consolidation and increased regulatory focus on financial institutions have resulted in the need for transparent and effective internal risk management systems. Algorithmics has produced a case study on the approach of one of its collateral users, Credit Suisse First Boston (CSFB). The main discussion points of the panel discussion can be summarised as follows:

We have received invaluable feedback from our clients on the 4.8 functionality via the reconciliation workshops, which we ran last year. All feedback has been carefully reviewed and has been taken into account in the development of our latest Reconciliation tool. One of the major comments last year was that feedback from clients was asked only after 4.8 was officially released, rather than before. This did not leave enough time to incorporate all important feedback.

Key Features

Presently, we are able to share with our clients the latest advances of our new Exposure Reconciliation functionality within the bigger Algo Collateral Next Generation Project.

Listed below are the key features with our latest alpha release:

• Performance: aiming to reconcile a +20,000 trades portfolio in less than a few minutes
• Usability: minimal set-up
• Many-to-many matching algorithm

Performance Testing

To be able to optimize our new reconciliation function and to enrich our test beds, we have asked clients who participated in our reconciliation workshops to send us their most challenging portfolios. We requested that these be challenging not only because of high volume, but also with complex many-to-many trades. In exchange for sending us these files, clients will receive the results of the reconciliation together with performance statistics.

Client Preview

Clients who participated in our reconciliation workshops last year have been invited to review the new version of the Exposure Reconciliation tool in our offices this month. After spending some time learning about the new Exposure Reconciliation tool, clients will be paired off with banks whose portfolio they have brought along, and work through the reconciliation exercise in a simulated environment on separate PCs.

A similar event will be organized in New York and other interested cities in the upcoming future.

If you are interested to attend this event or have any other questions please do not hesitate to contact Elisa Nordstrom (enordstrom@algorithmics.com, +44 (0) 20 7382 0126) for further details.

A number of large institutions met in May to discuss two of the most pressing topics in the collateral industry right now: Business Process & Collateral Control and Portfolio Reconciliation. Below are some of the conclusions they reached:

Business Process & Collateral Control - Conclusions

• Agreement that there is a requirement to build a generic collateral framework to develop the best practice across the industry
• Agreement to four high level collateral process steps and six core collateral functions
• Agreement to use generic framework to drive policy, accountability and best practice

The benefits for the collateral industry are:

• Common agreement and understanding of the core collateral process and key functions
• Platform to define standards and set best practice across all organizations, regions and products
• Enabler to drive governance, define roles, responsibilities and accountability
• Highlight common themes and areas requiring attention
• Toolkit to set business priorities and agree focus areas
• Platform to define standard solutions
• Positions the collateral industry to react to external requirements e.g. Sarbanes-Oxley
• Facilitates awareness & training across the industry

Portfolio Reconciliation - Conclusions

There are two main focus areas around portfolio reconciliations that have been identified by the pilot participants, including:

Reconciliation Process

• The scope of this focus area is external to the individual organizations (the industry as a whole) and is primarily centered around interoperability.
• Its aim is to recommend and introduce appropriate industry standardization and controls around:
  • Data formatting
  • Data reporting
  • Reconciliation procedures
• The three pilot participants will continue their manual and automatic reconciliations in order to support recommendations for standardization.
• The pilot participants will also examine other industry strategic options and create the business case for them.

Trade Flow Process

• The scope of this focus area is internal to the individual organizations and as such was not extensively covered in the off-site.
• Its aim is to internally communicate the outcome of the portfolio reconciliation pilot in order to re-engineer internal processes to support future industry standards.

The benefits for the collateral industry include:

• Process standardization will reduce operational and financial risk in the derivatives space. This can be achieved through an improved portfolio reconciliation process and an improved internal (to each individual organization) upstream derivative's processes.

Below is a representation of the Core Collateral Functions created by the Collateral Framework Meeting participants:

If you require more information on the Collateral Framework Meeting please contact:

• Geoff Robinson (geoff.d.robinson@credit-suisse.com, +44 (0) 20 7888 3975 )
• Tony Moore (tony.moore@gs.com, +44 (0) 20 7774 1197)
• Alastair Kidd (Alastair.Kidd@jpmorgan.com, +44 (0) 12 0234 5624)
• Maria Holt (maria.reilly@morganstanley.com, +44 (0) 20 7677 5985)

The Algo Collateral London and New York User Advisory Groups were formed this spring to promote the sharing of ideas, experiences and knowledge. The goal is to benefit users and also provide Algorithmics with direct industry input for product definition and solution delivery for the forthcoming Next Generation collateral application.

Once a month, participants of the User Advisory Groups come together to share views, swap ideas, theories, hold brainstorming sessions and above all, identify those ideas which can add or improve Next Generation functionality. This is accomplished by sharing our current state of development of the Next Generation application with the group, as well as ideas and wireframes yet to be developed.

For further information on these meetings, please do not hesitate to contact:

• Alison Duke in London (aduke@algorithmics.com, +44 (0)20 7382 0116)
• Armando Hernandez in New York (ahernandez@algorithmics.com, +1 212-625-5274)

We recently made some improvements to how we test our LegalXML module, and pushed for more automation in a bid to remove user error.

Our tests are now based on a combination of specifically designed actions, and scripts (run though external modules) that check the databases for the existence (or lack of existence) of the expected records and fields.

To start this process, we take a baseline snapshot of one of our testing databases. We know exactly what is in this database, and with each testing cycle, we refresh back to this baseline state. We then run one of our LegalXML import actions to insert some entities and agreement data. A scan then occurs using an external module, and it tells us if there are any errors (i.e. missing data).

The process is simple, but is actually executed over a dozen times using different scenarios that become more complex with each test. After we know a simple import works ('inserts'), we run another import updating the new data. We then move on to using key mapping based on source system aliases and then extension field. Finally, we get to do it all again with staging turned on, ensuring that no changes in the file results in no staging entries to approve.

Within these imported files, we took extra special care to flex our data to test the robustness of the module, introducing 'special' characters such as apostrophes and ampersands. We designed the tests to check correct resolution of foreign keys with mapping turned on, for instance importing a legal entity's branch.

The next improvement we are working on is to validate the export function by comparing the exported files to the expected correct output file. This is a similar to how we test all of our reports.

If you require more information on the Legal XML topic do not hesitate to contact Francois Marshall (CollateralEMEA@Algorithmics.com, +44 (0)20 7382 0154).

To check that all your TTX locations are correctly set in Algo Collateral, go to General Documentation on the Algo Collateral support site, and download the two files that are attached there. The excel file contains a list of all standard TTXs and their locations. If you save this as a csv file on the c: drive of your local machine, then run the SQL script (ReportCheck.sql) as an administrator on your database. The script will produce a text file listing all of the TTX locations in your database that do not match up with our list.

Note: because this script creates a temporary table, it is necessary that you run it as a user with drop and create table permissions on the tablespace.

If you need more assistance with the script, please contact Diane Gordon (CollateralEMEA@Algorithmics.com, +44 (0)20 7382 0154).

For several months now, Algo Collateral has worked at documenting all bugs identified in its 4.8 releases. The purpose of this exercise is to maximize transparency of our application and keep our clients informed on what problems they can expect to find in their release and in which version they have been fixed. This document is constantly under review so make sure you download the latest version of the 4.8 Known Issues List from the Algo Collateral Support Site.

New hires in the EMEA Professional Services team include: Guy Powell, who has an engineering background and has worked as a business consultant for Experian as well as on various database development assignments; and Terrance Baum, who joins us from Barclays Capital, where he worked with FX and FX derivatives products in Global Financial Risk Management. Prior to that, Terry accumulated extensive experience in risk and collateral management at AIG Trading Group.

Shantunu Malhotra has recently joined the Professional Services team in North America. Prior to working at Algorithmics, Shantunu worked as a Business Analyst at ICG Commerce, Inc. working with clients like Cadbury Schweppes, Goodyear and Avaya on IT/telecom business requirements and designing an implementation solution. Shantunu holds a Masters of Technology degree from Kent State University and has experience in software programming.

Happy news: Elena Lorente and Evelyn Dewaele are both expecting additions to their family this summer. Elena will be away from the office from late June to late September, and Evelyn from September to December. During Elena's absence, you can contact Farina Hering (fhering@algorithmics.com, +1 856-642-6101). Please note that Barry Mole is still the first point of escalation for any support and relationship issues in EMEA. Richard Barton (rbarton@algorithmics.com, +1 856-642-6101) will be taking over from Evelyn during her maternity leave. Please join us in congratulating them!