Buy-side Awards 2016
"Everything we do is risk management related," says Karl Wyborn, global head of sales at CloudMargin in London.
To this end, the company has over the past year added an optimisation tool to its collateral management platform, plus independent validation of the initial margin of over-the-counter (OTC) trades. The firm has also extended its connectivity across the industry, with new links to the Swift banking network and Chicago-based derivatives marketplace CME Group.
The CloudMargin platform facilitates communication between bilateral counterparties, clearing brokers and central counterparties to manage and monitor the margin call process.
As more products require collateral, volumes are rocketing, while regulation is making the process increasingly complex. Traditional collateral management methods are often time-consuming, expensive and error-prone. The problem is compounded by the variety of data formats used by counterparties, with some still relying on fax.
The solution lies in automation and improved connectivity, but many of the systems on offer are themselves complex, costly and time-consuming to install. CloudMargin has circumvented these issues by exploiting cloud technology to create a real-time collateral workflow tool for both cleared and non-cleared instruments that is quick and easy to implement and offers an expanding web of connectivity across the industry.
Users are able to make and receive margin calls, monitor collateral inventory and check eligibility, monitor balances and movements, co-ordinate interest payments and generate reports. The platform also offers secure and automated messaging between users to further reduce costs and risk.
CloudMargin's platform already connected to the major clearing brokers globally, as well as trade repositories, a range of market data providers, IHS Markit (for portfolio evaluations) and most major swap dealers through a link with the AcadiaSoft MarginSphere service. Joining the Swift network in January added access to custodians.
"Through the receipt of Swift statements, our clients are able to consolidate multiple collateral pools and view their available inventory in a single view. This single view, combined with CloudMargin's advanced optimisation functionality, enables our clients to reduce cost and risk through the optimal use of available collateral," says Lee McCormack (pictured), head of product development and strategy.
While cash remains the most commonly used form of collateral, there is demand to expand the use of securities among the buy side and CloudMargin's Swift messaging makes that possible, Lee says.
A collaboration with CME Group, announced in June, gives users direct access to the group's clearing platforms, once again reducing costs and operational risk, says Wyborn.
As with the Swift link, the CME connectivity was added in the background to the platform without requiring client software upgrades, thanks to the cloud infrastructure.
The independent validation of the initial margin of OTC trades now available on CloudMargin is provided by London-based open-source risk analytics specialist OpenGamma.
"Our clients now never need to give collateral away without first being able to validate the value. This includes cleared initial margin. In an environment where collateral values are increasing very rapidly, this is a key risk mitigant," says Wyborn.
The link between CloudMargin and OpenGamma's analytics is via the companies' application programming interfaces, which is quick and straightforward to implement in the cloud domain.
Although CloudMargin has been cloud-based from its launch in 2014, its platform was initially hosted by a local UK provider. However, when this service could not provide the global performance the company sought or give it the access to the functionality it needed, it moved to Amazon Web Services' (AWS) public cloud.
"By moving to AWS, we can use our in-house expertise to tailor our infrastructure in a more flexible and responsive way," says Bruno Fourcroy (pictured), lead developer at CloudMargin.
Cloud deployment enabled CloudMargin to achieve 99.98% availability during 2015, the company reveals, while averaging only four weeks for client implementations.
The firm has 29 direct clients, divided evenly between the buy and sell side.
Dan Cunningham, head of investment operations at London-based Old Mutual Global Investors, says: "We chose CloudMargin because of the very straightforward implementation process, the simplicity and quality of its interfaces and the fact we like working with smaller firms who are more willing to listen to our requirements and develop the system based on client feedback.
"Previously, we used CloudMargin for managing collateral for foreign exchange. We used it to calculate and validate collateral calls and to generate the collateral notices to our counterparties. We have since outsourced collateral management to our administrator, and now use the system to validate the collateral calls that the administrator is accepting and processing. CloudMargin built a specific mechanism for us to do so."