Fast-Tracking the Launch of an OTC Derivatives Operation

A large provider of commercial real estate financing solutions wanted to launch a new business line involving securitization of commercial mortgages, but needed to hedge the risks.

Managing hedging for a new business line      

The challenge: One of the nation’s largest providers of commercial real estate financing solutions wanted to launch a new line of business involving securitization of commercial mortgages — a venture that would expose the firm to credit, interest-rate, and market risks. To hedge those risks, the firm wanted to create a portfolio of derivatives, including interest-rate swaps and credit-default swaps. However, it had no expertise in OTC or derivatives trades, which are negotiated and traded off-exchange as private contracts between two parties. Nor did the firm have any framework for managing the collateral required to secure such trades. 

Our deep practical knowledge of OTC trading helped us find the optimal technologies, processes, and workflows for this client’s situation.

An outsourced end-to-end operation     

The solution:  Thanks to our open-architecture approach, we were able to build a comprehensive OTC derivatives platform that integrates best-of-breed components including:

  • MarkitSERV Trade Manager, which aggregates trade data across multiple OTC asset classes.
  • A Treasury Cash Management (TCM) system.
  • COLLINE®, a system for proactively managing collateral across the organization.
  • TriOptima’s triResolve technology for reconciliation of OTC derivatives.  

Our deep practical knowledge of OTC trading helped us find the optimal technologies, processes, and workflows for this client’s situation. We detailed operational processes and workflows, guided the selection of trading counterparties, and crafted sound legal agreements for each type of trade.

The benefits:

  • Cost-effectiveness. The firm was able to avoid hiring staff with OTC expertise. It also eliminated the costs and time that would have been required to research, purchase, and implement the needed technologies.
  • Advanced reporting. By providing flexible access to hedge portfolio data, SEI’s Manager Dashboard helped the firm keep tabs on its business and credit risks.    
  • Evolving best practices. SEI’s operational and compliance experts help the firm stay abreast of changing methods, technologies, and regulations in the derivatives arena. 

The results:   A complete risk-hedging framework  

With our comprehensive OTC derivatives infrastructure in place, the firm was able to accelerate the launch of its new business and focus on pursuing opportunities without operational distractions. It could move forward with the assurance that it had solid hedging mechanisms in place.  

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