Algo Collateral Newsletter

"In the years to come, KBC Bank expects a continuing increase in margin call's & collateral settlements (both cash & securities) as a result of its efforts to offer margining services for different business lines & different KBC Group-entities. In this regard, operational efficiency becomes more & more important. At the downstream side of the margining process, this entails a growing need for an automated collateral settlement process. Translated into the Algo Collateral context, this means that after the agreement with a counterpart on the collateral to be deposited, payment & settlement instructions are being sent automatically to the right area for execution after which feed-back messages are being integrated into the Algo Collateral workflow to move the collateral trade (instead of the margin event) to the desired state. This automation allows both the collateral manager & collateral administrator to dispose at any time of the most accurate and recent data regarding the 'collaterals in transit, completed or fail'. It goes without saying that in this way, the overall quality of the collateral process improves considerably", said Erik Wuyts, Head of Risk and Collateral Management at KBC.

Algorithmics has developed new features for Algo Collateral, including support middleware functionality and parent-child workflow relationships, to support those clients that have not already begun to build their STP processes.

Algo Collateral now supports communication with other systems via a generic middleware interface. The initial middleware communication protocol supported in Version 4.4 is IBM's MQSeries. Other protocols will be supported in subsequent releases. The new Middleware capability allows Algo Collateral to communicate with a client's internal systems that are based on a wide variety of hardware platforms and written in all standard programming languages.

Components:

• Central Messaging System: currently the supported communication protocol is IBM's MQSeries.
• Algo Collateral Middleware service polls the central messaging system for incoming messages. This service can be used to publish messages from Algo Collateral to other systems.

Event external module implements the business rules specific to the client requirements.

One possible scenario is a margin call (event) involving two collateral trades, for example, 5,000,000 of a particular bond and some cash. When the collateral manager has agreed on the collateral to be delivered and promotes the event to the next workflow, the information is automatically sent to the settlement system by a message. The settlement system returns a confirmation back to Algo Collateral, which will update the status on that specific trade. When a new message is sent later regarding the settlement of the second collateral movement, Algo Collateral updates both the status of the collateral movement and the event that represents the margin calculation.

Parent-child workflow relationships are supported by improved operational workflow methodology processes in Algo Collateral Version 4.4. Each event in Algo Collateral can now have several offspring events attached. In practice, the parent workflow will only be promoted to the next stage of its predefined lifecycle when all offspring events have reached a certain predefined stage in their respective lifecycles. For example, consider the case where a parent workflow represents a Demand (margin call) for collateral and the children workflows represent individual collateral trades that the margin call is comprised of. The parent-child workflow functionality allows a user to attach different workflow transitioning procedures to each of the child trades in terms of how each trade is settled. When all child trades are settled, the user can trigger the parent event to proceed to the next stage of its lifecycle in Algo Collateral. An Algo Collateral user can also create an external module to automatically trigger the transition of the parent workflow based on changes to the child workflows within the firm's settlement systems.

Drilldown Margin Details Support
This functionality allows the user to drilldown to the appropriate transaction detail level for certain aggregate information displayed on the margin calculation screen. The system can display detailed information for exposure positions, threshold information, or collateral trades (both counterparty and principal).

Wizards
Help Wizards are being implemented to automate and expedite static data setup in Algo Collateral. Initial Wizard prototypes are available in Version 4.4 to enter Contacts, Legal Entities, and Reconciliation configuration. A Wizard to enter new Collateral Agreements will be available shortly. Additional Wizards will be added in subsequent releases of Algo Collateral for other relevant static data components.

Performance Improvements
Algo Collateral Version 4.4 provides significant performance benefits with regards to Cash Distributions, Reconciliation, and Reports. Code changes now optimize memory caching when performance improvements are most important to users. Users can also define an unlimited number of event transition states when a user promotes a given event in Version 4.4. In previous versions of Algo Collateral, each event promotion was limited to three transition states. In this new version of Algo Collateral, a user can define an unlimited number of event transition states. Where more than three event transition states are defined, a dropdown selection box will appear on the screen and the user can select an event transition state to which the event should be promoted.

Future integration enhancements between Algo Collateral and Algo Credit will be discussed at Algorithmics' Algo Credit Conference: "Working towards BIS II", on November 21-22. For more information and a copy of the conference agenda, please visit www.algorithmics.com/aboutalgo/events.shtml.