Clearinghouses aren’t much different from other large financial organizations, in that they are have siloes of products, each with their own risk management systems. Tying those systems together can present a logistical nightmare.
“Risk management and margining is the reason why CCPs exist, and the way they functions and calculate margins is highly regulated, which requires a good level of transparency and agility in the way the technology is designed,” Mohamed Ait Si Brahim, vice president of engineering at risk management technology provider OpenGamma, told Markets Media. “Some CCPS are less fragmented than others. Some clearing houses might have each business line using a different risk engine. Some others have a very good centralized solution.”
Prior to joining OpenGamma six weeks ago, Ait Si Brahim spent more than three years at LCH.Clearnet, where as head of risk technology he was responsible for building a risk analytics platform providing margining, credit risk, stress testing and regulatory reporting as a service, and where he also established am engineering group and supporting development processes.
“My background is software engineering, especially in risk systems, clearing, portfolio valuation and asset management systems,” said Ait Si Brahim. “I bring a lot of capital markets experience and a heavy background from a vendor perspective as well."
Ait Si Brahim was brought into LCH “to convert a highly fragmented landscape where there was no central strategy into a centralized stack that will lead to transparency and agility and better serve the LCH clearing members and their clients,” he said. “Ultimately, the goal was to achieve cost efficiency in terms of technology and be positioned to leverage on more by focusing our effort of our secret sauce (IP).”
A CCP like LCH has two risk dimensions. “You have the business lines across the various asset classes like SwapClear, CDSClear and EquityClear, and a group risk function which is a transverse business layer which looks at risk across the board,” said Ait Si Brahim. “A lot of the clearing houses have that element of two dimensions.”
What was interesting about his job at the LCH "is the horizontal silos are actually the hardest,” he said. “Because you act as the concentrator of risk for the firm, the pressure is very high and room for failure very low, so you have to understand the business as whole, manipulate huge amounts of data and build reliable software solutions.”
The problem that Ait Si Brahim addressed at LCH was to capture all the risk measures across the company, and build a strategic risk platform that could be used to calculate risk centrally in a scalable and reliable way.
“It’s about building a central stack and is very similar way to what the OpenGamma platform is,” he said. The end result is to “offer cross asset classes margining capabilities and consolidated exposures intraday that vertical silted platforms could not offer.”
Risk calculation requirements are different from one business line to another: some business lines like equities are more volume-oriented but involve less complexity of calculation, whereas others, such as credit derivatives, require more compute power.
“I went through the whole spectrum of requirements and tried to build an architecture that was generic enough and offer a good level of flexibility,” Ait Si Brahim said. “But such a platform requires a strong engineering group that not only knows how to build good software but also are credible advisers to the business in terms of understanding the domain.”
Featured image via Dollar Photo Club
