Algo Collateral Newsletter

This letter is aimed at all Algo Collateral reconciliation users upon request from a few of our clients in an attempt to standardize collateral reconciliation practices.

The 2001 ISDA Margin Provisions stipulate that when a call recipient disputes a demand for either a delivery amount or a return amount it must transmit Portfolio Information in an electronic format for receipt by the calling party by 5:00 PM that day. No further detail is given as to what this Portfolio Information entails. In general, collateral practitioners exchange excel spreadsheets with more or less the same data fields in random order with headers, footers, totals, grouped by product (or not), in the currency of the deal, collateral contract or system.

"When performing reconciliations with our customers, one of the most time consuming factors is the reconfiguration of the client's portfolio statement. Once this is achieved, and is ready to be processed through Algo Collateral, the reconciliation can be performed with minimal use of time and effort. When dealing with other Algo Collateral users, the exchange of 310 portfolio statements can eliminate the need for manual manipulation of the incoming file, thus speeding the process up, and cutting out human error", said Simon McKernan ABN Amro Bank.

McKernan's comment regarding the 310 portfolio statement is a reference to Algo Collateral's interpretation - in co- operation with some of their clients - of the ISDA term Portfolio Information.

The Algo Collateral portfolio statement is specifically designed to enable clients to export their portfolio information to Excel format for their counterparties to reconcile. The 310 portfolio statement lists the following fields in the following order: trade reference, trade date, effective date, maturity date, 1st notional currency, 1st notional, 2nd notional currency, 2nd notional, issue, product category, buy/sell indicator, put/call indicator, MtM value, MtM currency, underlying name and strike price. This selection of data has been compiled based on feedback from a number of our clients. However we look forward to additional feedback during the Users Conference, February 3-5th, in Barcelona. We will also propose this format to the ISDA Collateral Working Groups in an attempt to get an approval of the format from non-Algo Collateral users as well.

In the past our clients have been using several reports, including the 301 and 304 report, to exchange data with their counterparties. In an effort to ensure consistency, we would therefore like to urge Algo Collateral users to use 310 reports for reconciliation purposes, rather than the 301 or 304 report. The report can be set up under Agreements, in Landscape and will require a selection containing the counterparty/agreement ID to which a user will be sending the file. This report should only be run for one agreement - it can handle more, but this will mean that the user will have to cut and paste each agreement from the exported spreadsheet. There are no parameters on the reports.

The file produces a few extra rows at the top, but then goes straight into the column headings and data with no spaces between records so collateral practitioners should not have to delete any blank rows or columns. The calling party can then just select and name the range and do the reconciliation as per usual.

After reviewing/reconciling the Portfolio Information the Calling Party will then need to transmit a notice by 10:00 AM the following day which lists details of differences in Portfolio Information and the calling party's own valuation data. This notice is commonly known amongst Algo Collateral users as the 800 or 801 report. Algorithmics is currently reviewing its reconciliation module and is looking for feedback on these reports as well.