CCP Optimization and Automation: Q&A with Bimal Kadikar, Transcend CEO
Transcend’s CCP Central has revolutionized target state optimization of cash and collateral pools across a global network of CCPs. With an industry-leading 30-plus CCPs globally, Transcend continues aggressively expanding its coverage and capabilities to support its clients. Bimal Kadikar, Transcend’s founder and CEO, shared some thoughts on the CCP Central platform.
Can you provide an overview of Transcend’s CCP Central, and what the solution does?
CCP Central is all about creating a single portal connecting a disparate ecosystem of CCP data. Every CCP operates in its own way, with unique rules, requirements, and nuances. This lack of standardization across CCPs has made it difficult for firms to efficiently manage and scale their CCP-facing collateralization processes. As the market leader in collateral optimization, it was important for Transcend to incorporate CCPs in our technology framework to offer a truly holistic solution.
CCP Central provides our clients with real-time visibility across CCP relationships and thoughtfully operationalizes margin processes.
Can you walk through a use case of how a firm could benefit from CCP Central?
The main benefit of CCP Central is to get a single portal to manage and optimize all margin obligations in real-time in an optimal manner and achieve operational efficiencies by STP of collateral movement. Transcend solution allows firms to get a harmonized view of the world across CCPs while maximizing economic and operational efficiencies. Optimizing collateral is not easy to achieve with CCPs as the methodologies can vary widely. For example, Options Clearing Corporation (OCC). OCC is a challenge because, unlike other CCPs who publish haircuts by securities that apply to all members, they accept securities under their “Collateral as Margin” procedure. This means that they charge each member a variable-bespoke haircut per security based on its interplay with the members’ trading positions: the “Portfolio Specific Haircut” or PSH of each security.
So, adding Apple shares as collateral may reduce the overall portfolio exposure, whereas adding NVDA shares could increase exposure within a firm’s trading portfolio at the OCC. Consequently, the OCC would give the firm more collateral value for Apple than if the firm posted the NVDA. At another member, the situation could be reversed, and NVDA shares would be more optimal than Apple shares to pledge as collateral.
It becomes critical for firms to figure out which security to post based on the dynamic margin method. Now, think about this complexity multiplied across all CCPs; it becomes a daunting challenge for most firms without an automated and target state-driven solution.
Because Transcend connects CCP datasets and analyzes all reference data and constraints, our technology can seamlessly identify what is the best security to post to get the best value across all obligations.
What trends have you seen in the industry that have impacted the evolution of Transcend’s CCP Central?
Traditionally, CCPs have been one of the most critical players in the derivatives markets, and they continue to rapidly grow in importance. They consume valuable capital, funding, and liquidity. And consequently, our clients in their drive to be maximally efficient invest heavily in how to reduce financial and operational costs via holistic collateral optimization.
Typically, because most firms manage complex CCP requirements manually, they must keep to simple collateralization routines focused on meeting critical requirements in a timely fashion. However, in doing so, they incur an opportunity cost by missing out on smarter combinations of assets that are achievable with better tools.
At Transcend, we are flipping that concept around. Our technology first identifies the most economically efficient collateral allocations and then carries out the operational processes required to instruct the movements and achieve full STP automation where possible.
In our view, we lead our industry with global connectivity and have onboarded over 20 CCPs, adding additional CCPs every quarter. We continue to build our CCP relationships to ensure that our platform’s capabilities are strategically aligned with our client’s optimization goals.
How does CCP fit into Transcend’s solution suite of collateral, funding, and liquidity products?
The Transcend solution suite is a cohesive, fully integrated yet modular platform. We have built each of our products thoughtfully and organically, integrating each module into a systematic architecture that can either solve very specific challenges or work together as an end-to-end enterprise solution. These modules span Eligibility, Inventory, Margin, Optimization, and Booking Service.
CCP Central is an extension of our existing offering and allows clients to choose to either streamline CCP funding optimization on its own or to fold cleared derivatives CCP funding into a broader firmwide collateral strategy.
What makes CCP Central different from other solutions, whether built internally or developed by third parties?
As far as I know, no clearing member or software provider has been able to build the holistic solution that Transcend offers, especially within the context of enterprise-level optimization. While many have spent years tactically developing parts of a digitized data framework, they have not been able to connect all aspects from eligibility, margin requirements, substitution opportunities, and optimization along with other demands and achieving full STP with the CCP as well as internal processes.
The truth is that it is difficult and costly to build and maintain such wide connectivity. Transcend’s out-of-the-box solution is an affordable and scalable solution that allows firms to minimize development, hosting, and maintenance costs while reaping the benefits of a thoughtfully built solution that has evolved over the last seven years.
We’ve already overcome the challenges of comprehensive optimization by developing and implementing Transcend at top-tier banks, broker-dealers, and custodians. Why recreate the wheel or only solve part of the puzzle when Transcend can solve your firm’s greatest technological challenges in a very short timeframe?
Learn more about Transcend’s CCP Central solution and request a demo.
This updated content initially appeared in PR Newswire, May 19th, 2021.
