Case Study:  Total Return Swap Front-to-Back Platform

Engagement:

A Global Investment Bank selected Risk Focus to design and build a custom report-generating database to serve as the primary portfolio reporting tool for the Leveraged Loans TRS business. The solution would have to be capable of receiving feeds from the Trustee detailing loan position and price details as well as managing a centralized Reference and Market Data repository. Additionally, the solution would have to be capable of facilitating the daily management of loan positions, counterparty exposure, and portfolio compositions.

The Situation:

A management of the business was performed primarily through the use of dozens of Excel Spreadsheets. These spreadsheets posed an operational risk as there was position, reference, and market data redundancy. The manual checks and balances in place did not provide adequate integrity to support the growing business. The desk users of the spreadsheets produced manual reports on a daily basis through a time-intensive process of updating data and performing various levels of spreadsheet aggregation.

Approach:

A Risk Focus team assessed the spreadsheet environment and architected a 3-Tier solution comprising a new centralized database to manage Trade, Reference, and Market Data, as well as a Services layer capable of distributing this data to multiple interfaces including Trade Entry, Market Data Management, and Reporting tools.

Through detailed data analysis the team was able to:

• Create a consolidated data dictionary from the multiple linked spreadsheets previously used to maintain the data
• Design a data model to properly represent TRS trades and client positions
• Provide the relational view of data, ultimately defining the relational database
• Perform full data cleanup and remove duplicate references during data migration

During initial development activities, the team was able to:

• Create insert/retrieve web services allowing existing spreadsheets to persist/retrieve data directly to/from the database
• Provide a validation framework using rules within the application server layer to ensure the correctness of persisted data
• Provide data versioning to allow for historical analysis

The team developed a prototype of the solution and created a plan for systematically decommissioning the parts of the spreadsheet tool which would give immediate value to the business.

Risk Focus was responsible for the initial phase implementation kick-off, delivering an initial functioning version of the architecture, transitioning the final implementation to internal team, and providing continuity in form of ongoing project management and business analysis through subsequent releases. Initial architecture decisions by the team allowed for short development cycles and the ultimate delivery of a centralized trading desktop tool.

Results Achieved:

The TRS solution allowed the client to centrally manage all client portfolios using consistent Reference and Market Data. The solution also allowed for reporting in an automated fashion from the central database using both Trustee and Desk-supplied data. The operations-intensive and risk reporting responsibilities once performed by the desk are now automated, which allowed the users to focus on managing the growth of their business.

The analytical and portfolio testing tools using the centralized data have given the business the ability to manage their positions with more transparency, and have led to tremendous growth in the client’s business. The solution was considered highly successful by both the Business and Technology groups alike and was recognized as one of the best project deliveries in the groups history.