CCP Optimization and Automation: Q&A with Bimal Kadikar, Transcend CEO
- Jun 17, 2021
- Blog CCP Margin Collateral Optimization Derivatives Technology
Last month, Transcend announced the launch of CCP Central, the first enterprise-wide CCP optimization and connectivity solution. We interviewed Transcend’s founder and CEO, Bimal Kadikar, to gain his insights on CCP Central.
For those who may be unfamiliar with Transcend CCP Central, can you please explain what the solution does?
CCP Central is all about connecting an ecosystem of disparate CCPs. Every CCP operates in its own way, with unique rules, requirements, and nuances. This lack of standardization across CCPs has made it difficult for firms to efficiently manage and scale their CCP-facing collateralization processes. As the market leader in collateral optimization, it was important for Transcend to incorporate CCPs in our technology framework in order to offer a truly holistic solution.
CCP Central provides our clients with real-time visibility across CCP relationships and thoughtfully operationalizes margin processes.
Can you walk through a use case of how a firm could benefit from CCP Central?
A great example is OCC. OCC is a challenge because, unlike other CCPs who publish haircuts by securities that apply to all members, they accept securities under their “Collateral as Margin” procedure. This means that they charge each member a variable-bespoke haircut per security based on its interplay with the members trading positions: the “Portfolio Specific Haircut” or PSH of each security.
Let’s say adding GE shares as collateral reduces the overall portfolio exposure, whereas adding IBM shares as collateral would increase exposure within a firm’s trading portfolio then the OCC would give the firm more collateral value for GE shares versus if the firm posted the IBM ones. At another member, the situation could be reversed, and IBM shares would be more optimal than GE shares to pledge as collateral on the same day.
It becomes critical for firms to figure out which security to post based on the dynamic PSH method. Now, think about this complexity multiplied across all CCPs; it becomes a daunting challenge for most firms without an automated and smart solution.
Because Transcend connects CCP datasets and analyzes all reference data and constraints, our technology can seamlessly identify what is the best security to post in order to get the best value across all obligations.
What trends were you seeing in the industry that led to the development of CCP Central?
Traditionally, CCPs have been one of the most critical players in the derivatives markets, and they continue to rapidly grow in importance. Nevertheless, our clients continue to struggle with how to conduct holistic CCP optimization.
Typically, because most firms manage complex CCP requirements manually, they have to keep to simple funding routines focused on meeting critical requirements in a timely fashion. However, in doing so, they incur an opportunity cost by missing out on smarter combinations of assets that are achievable with better tools.
At Transcend, we are flipping that concept around. Our technology first identifies the most economically efficient collateral allocations and then carries out the operational processes required to instruct the movements.
How does CCP fit into Transcend’s solution suite of collateral, funding and liquidity products?
The Transcend solution suite is a cohesive, fully integrated yet modular platform. We have built each of our products thoughtfully and organically, integrating each module into a systematic architecture that can either solve very specific challenges or work together as an end-to-end enterprise solution.
CCP Central is an extension of our existing offering and allows clients to choose to either streamline CCP funding optimization on its own, or to fold cleared derivatives CCP funding into a broader firmwide collateral strategy.
What makes CCP Central different from other solutions, whether built internally or developed by third parties?
As far as I know, no clearing member or software provider has been able to build the holistic solution that Transcend offers especially within the context of enterprise level optimization. While many have spent years tactically developing parts of a digitized data framework, they have not been able to connect everything end-to-end.
The truth is that it is difficult and costly to build and maintain such wide connectivity. Transcend allows firms to minimize development, hosting and maintenance costs while reaping the benefits of a thoughtfully built solution that has evolved over the last seven years.
We’ve already overcome the challenges of comprehensive optimization by developing and implementing Transcend at top-tier banks, broker-dealers and custodians. Why recreate the wheel or only solve part of the puzzle when Transcend can solve your firm’s greatest technological challenges in a very short timeframe?
Learn more about Transcend’s CCP Central solution, or request a demo.