Treasury Today Country Profiles in association with Citi

Are you getting a fair deal on your derivatives trades?

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A new solution aims to ensure treasurers are able to better calculate the cost of their derivatives deals.

With increasing currency volatility, changes in interest rates and overall economic uncertainty, treasurers are placing a renewed focus on risk management.

For many treasury departments, especially those looking for certainty, derivatives are a good tool to mitigate risk and protect the company’s financials from moves in the market.

Yet derivatives come at a cost and often these costs are hidden, meaning that treasury departments can never be fully sure that they are getting a fair deal.

Greater transparency

This is one reason why OTC derivatives post-trade risk management and infrastructure services specialists TriOptima has developed its triCalculate solution.

“Corporate treasurers that are hedging exposures have a real business need to use derivatives,” says Mireille Dyrberg, Chief Operating Officer at TriOptima. “However, when they execute the deal with a bank they typically cannot see how the price of the deal is calculated and how the bank is charging them for the credit risk. Essentially, you cannot see if you are getting a good price or not.”

triCalculate looks to change this by taking the corporate’s derivatives trade file, a credit curve file and a credit support annex (CSA) file (where one exists) and running these through a series of highly complex mathematical simulations. The result: an accurate XVA calculation that enables corporates to quickly identify and price the impact of a counterparty default and the cost of funding a derivative portfolio.

Quick and easy

Although software solutions have addressed this topic before, Dyrberg points out that this is the first of its kind that is being delivered as software as a service (SaaS).

“Clients that want to use the service simply provide us with the data files over the web,” she says. “We then run these through our triCalculate risk engine and publish the results through our web portal.”

In addition, by using technology first developed for the gaming industry, TriOptima say that their solution is by far the fastest on the market and they are able to process even very large derivative portfolios in under 20 minutes.

With this information, Dyrberg notes that corporates can use this to renegotiate agreements with their banks and report on their trades more accurately. The information can also be used by the accounting team for quarter and month end.

“There is no upfront cost, clients are simply charged based on usage,” adds Dyrberg.

Planning for the future

Rather than simply providing corporates greater transparency over their current derivative portfolio, triCalculate also offers the chance to better plan for new deals.

“Treasurers are able to add dummy trades into the system to see how this will impact not only the XVA of the new deal but also that of their existing portfolios and provide them with a chance to seek out the best price,” says Dyrberg.

In the future, TriOptima is also planning to build an API layer that then enables these dummy trades to be pushed straight through to the front office booking system. “This will reduce the need for treasurers to rekey in the information after making a decision,” says Dyrberg.

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