Algo Collateral Newsletter

As a leading provider of collateral solutions we are dedicated to maintaining this status and staying technologically ahead of our competitors. Therefore, we are currently focused on creating a next generation version of Algo Collateral to increase scalability and adaptability, improve performance, and usability, and increase ease of deployment to our clients.

In order to achieve this we aim to improve collaboration between Algorithmics and its users, while also encouraging collaboration between users themselves. We have made strides to better understand our clients' needs by hiring business experts to be the liaisons between our clients and our development team. This allows us to collectively develop and drive the system usability. In addition, we continue to liaise with groups such as ISDA and ISITC to ensure that we are focused on the ever-changing industry requirements. We want to improve and increase our customer base by designing an enterprise-wide solution, fully capturing business lines such as OTC derivatives, repo, securities lending, and FX.

Algo Collateral's next generation is organized as a service-oriented architecture (SOA). This architecture is built upon the Microsoft .Net 3.0.

The Algo Collateral next generation release has been architected to follow the standard 'three-layered services' architecture pattern with separation into presentation, business, and data logical layers. This allows deployment to one of many physical tiers for scalability and availability. The system architecture allows the ability to scale out by adding additional computing resources for any of the tiers.

Users can expect significant performance gains with the new core architecture of Algo Collateral. The "three-layered" system will leverage Smart Clients to simplify deployment and improve client interaction, while at the same time core business objects will be moved out of the client system and loosely coupled as services to allow processing to be distributed across multiple servers if needed.

In addition, the Algo Collateral product team is now leveraging virtualization technology, such as VMware ESX server. This enables efficient creation and storage of virtual test environments that replicate various customer environments for testing and bug analysis purposes. Using virtualization software is the most effective way to make this possible as it enables provisioning, configuration, and tearing-down of a set of servers (or configurations) that can be restored to their original state or back up their existing state in seconds.

If you are interested in finding out more about our next generation release, please do not hesitate to contact Richard Barton (+1 215-220-4022).

We are pleased to announce the availability of the new Algo Collateral Concentration module. The main aim of the module is to enable institutions to accept a wider range of collateral beyond cash and government bonds. From a risk perspective, the module monitors and ensures that any likely collateral received meets prescribed concentration risk criteria.

Key features

• Exception reporting by counterparty and managing location, showing which piece of collateral by which counterparty has broken a concentration limit or is no longer eligible.
• Supports integration into workflow processes to notify when concentration limits have been broken and when collateral is no longer eligible.
• Supports creation of substitution events for collateral causing breaches.
• Expanded set of instrument static data to support advanced eligibility criteria - e.g. weighted average FICO for mortgage and asset backed securities, CMO class type, bond purpose for municipal securities.

Rules

Algo Collateral Concentration supports a wide range of complex rules. These rules can be defined within legal agreements. There will also be support for company-wide rule sets that look at the risk across the whole collateral portfolio.

Example rules supported in Algo Collateral Concentration:

• Issue Rating Rule:
  • Ability to set concentration limit by issue rating (individual or rating bands).
  • Example: No more than 40% of the total collateral held (or £15M collateral) can be from a rating band of A to BBB, and no more than 10% from rating BB.
• Issuer Type Rule:
  • Ability to set concentration limit by issuer type.
  • Example: No more than 30% of total collateral (or £15M collateral) can be from issuer type X (where issuer type can be government, corporate, supranational, or cash).
• Issuer Country Rule:
  • Ability to set concentration limit based on sum of holding for a particular issuer country.
  • Example: No more than $50M can come from a particular country (of the issuer), or 25% of the total collateral held can be from a particular country (of the issuer).

The above examples are a subset of rules that can be configured in Algo Collateral Concentration. Rules can also be defined by, for instance, industry sector, single issue/issuer or combination, percentage of amount issued or outstanding, issue currency and issuer rating.

Screenshot of rule builder:

Screenshot of User Interface:

This release can be integrated with previous versions of Algo Collateral or as a stand alone module.

This is the first Algo Collateral product to be built on the next generation service oriented architecture. The module can even be linked to any collateral management systems that lack concentration or advanced eligibility functionality.

If you are interested in finding out more about the Algo Collateral Concentration module please do not hesitate to contact Neil Murphy (+44 (0)20 7392 5738).

Within the Algo Collateral team we are keen to incorporate feedback from our clients at an early stage of product development. Frequent feedback is essential to Algo Collateral in ensuring that we are focused on adding value to the product. To achieve this, we are working with client groups in our First Customer Program. We currently have one client for our next generation Concentration program in Europe, and customers in Europe and in the US for the Algo Collateral Reconciliation module. We are interested in working with additional clients for first customer programs for upcoming products.

The First Customer Program exposes our new products to selected clients. These clients receive early releases of the product to explore and gain experience with new features prior to public release. The clients also have the opportunity to work closely with the Algo Collateral product team to help provide input to the future direction of the product. Clients in the program are involved throughout the product development lifecycle, and have the opportunity to develop strong relationships with other clients in the program.

The objective of the First Customer Program is to ensure that when our products are released, they reflect the needs of our clients and have been validated within our user community - the products are proven to work in client environments.

The First Customer Program is one example of the way the Algo Collateral team is seeking to improve collaboration with clients. We enhance this through our regular User Advisory Group meetings in NY, Toronto, and London, by working with the self-organized German User Group, and attendance at various industry initiatives such as the Collateral Framework groups in NA and EMEA.

If you are interested in finding out more about our beta programs or are interested in joining, please do not hesitate to contact Richard Barton (+1 215 220 4022).

 We are happy to report that one of our major clients in the Scandinavian region, Nordea, is now managing the margining of its securities lending agreements within Algo Collateral. This is the result of one of 2006's major initiatives in EMEA.

Some of the key enhancements include:

• Full management of the lifecycle of stock loans and borrows. I.e. from when they are entered in the trading system to the settlement of the underlying security and consequent inclusion in margin calls, to the return of the security and deletion of the trade in Algo Collateral. Trades have a status that goes through various stages, such as 'NEW', 'MTM', 'EXPIRED', 'RETURN', etc.
• Support for prepay agreements, whereby collateral is requested x days before the start date of a trade.
• Support for DVP trades - the collateral position is updated with the DVP cash amount specified on the settlement confirmation, to reflect the collateral that was received/posted as the security leg of the stock/borrow settled.
• Intra-day settlement of security collateral through MQ messages.
• Possibility to 'fix' collateral to a certain trade. The collateral will remain in place until the trade matures. A custom screen and workflow have been created to capture and return 'fixed' collateral.
• Handling of collateral position changes brought by corporate actions, such as splits (using a collateral trades source system).
• Implementation of 'correlation rules' that affect the IA and the haircut applied to 'related' (same issuer) exposure trades and collateral. A custom report source is used to show trade by trade, and position by position, the level of correlation.
• Netting of collateral positions across parties.
• Support in various areas of the application for 'partial return' trades, to model the return of part of the lent security. The 'partial returns' will point to the initial trade through the use of a 'Primary Trade ID' field. This can be taken into consideration during correlation calculation and status changes.

If you are interested in finding out more about the Nordea securities lending implementation, please do not hesitate to contact Francois Marshall (+44 (0)20 7392 5728).

As you may already be aware, daylight savings time in most of the US has been extended to be effective from the second weekend of March through the first weekend in November.

There will be no need to change the GMT offset as GMT is not changing. Clients only need to set up the correct dates for DST and the system will take care of the rest. These dates are normally updated as part of the client annual static maintenance. The DST tab is located on each city under TablesCountriesCities.

To clarify, the system is based on GMT time, so as far as Algo Collateral is concerned:

1. Currently, London is at GMT +0 and New York at GMT -5 with DST off, so at 14:00 GMT the system will show 14:00 for London and 9:00 for New York.
2. On 24th March, London will still be GMT+0 and New York GMT -5 but DST of +1 will be applied for New York, so at 14:00 GMT the system will show 14:00 for London and 10:00 for New York.
3. On 6th April, London will still be GMT +0 and New York GMT -5 but DST of +1 will be applied to both London and NY, so at 14:00 GMT the system will show 15:00 for London and 10:00 for New York.
4. On 30th October, London will still be GMT +0 and NY GMT -5 but DST of +1 will not be applied for London, so at 14:00 GMT the system will now show 14:00 for London and 10:00 for New York.
5. On 5th November, London will still be GMT +0 and New York GMT -5 and DST will again be off for both cities, so at 14:00 GMT the system will now show 14:00 for London and 9:00 for New York.

For further information visit: http://nationalatlas.gov/articles/boundaries/a_savingtime.html.

We would like to inform our clients about a staging fault in Algo Collateral versions prior to 4.8.11. When staging is turned off for collateral positions and exposure trades, and the user makes an update on the collateral agreement that is rejected, all positions and trades are deleted. Note that the issue only occurs when the update is rejected, not approved.

The workaround is to always approve the change and then immediately amend the agreement to the correct data.

If you have concerns or questions regarding this issue please contact Algo Collateral Support.

Algo Collateral has again been voted first in the collateral management category of Risk magazine's annual Technology Rankings. The ranking is based on voting by international users of risk management software products. The full report can be downloaded from our website.

This accomplishment would not have been possible without the efforts of our clients, partners, and employees - we thank you all very much!

We are pleased to announce a new hire in the EMEA Professional Services team, Matthew Stafford. Matthew is an experienced consultant within the financial services sector and has worked with some of our larger clients. He joins us from FSI (FM Solutions) where he worked as an implementation consultant. Matthew has a Bachelors Degree in Software Engineering from Durham University.

Neil Murphy has recently joined Algo Collateral EMEA in a Pre-Sales/Business Development role. Neil joins us from ABN Amro, has extensive collateral management experience, and is well known within the collateral market. He is actively involved in industry initiatives and a regular speaker at conferences. In addition to his market knowledge, he is an experienced user of Algo Collateral software.

Please join us in welcoming Matthew and Neil to the Algorithmics community.