Banks Must Update Their Default Management Capability Warns Formicary

Formicary Ltd, a software and systems integration provider, is stressing the importance tobanks of maintaining their Default Management systems and procedures. The advice comes as banks facestringent new clearing house requirements in 2012. In anticipation of the extensive preparation needed by banks to meet the regulations, Formicary has expanded its dedicated team that designs and implementsDefault Management Systems at member banks. Additionally, Formicary has released an update to its Default ManagementProcess (DMP) portfolio analysis tool to include new trade typeswhich are beginning to be eligible for clearing by the more progressive and forward thinking clearing houses, such as VNSand FRA.

Risk-mitigating regulation - developed following the financial market crash in 2008 - coming into effect in 2012 include the European Market Infrastructure Regulations (EMIR) and the Dodd-Frank Wall Street Reform. The regulations mean that clearing house members must performa periodic DMP 'fire drill'which ensures they would be able to handle a default of another member. Prospective members must also pass the same procedure, referred to as the 'driving test',before they are accepted as a member.

Formicary's DMP Portfolio Analysis Toolis used by several bank members to quickly identify issues with the translation of auction packs to their own trading and valuation systems. The tool helps with accuracy of trade export / import reconciliation while Formicary's experiencedteam also ensures that members can streamline and accelerate thereconciliation process, thereby saving time and reducethe costs associated with the fire drill and driving tests.

"The fire drill and driving test are rigorous time-consuming processes which require the attention to detail that you would expect when bidding on portfolios of upwards of 200,000 trades, explains Geoff Carruthers, director of professional services at Formicary. "Banks cannot afford to underestimate the depth of knowledge and understanding that is needed to execute them correctly. Failure to get it right could potentially put the bank, the clearing house and the consumer at risk.Many banks assign teams of analysts and developers to a projectahead of the test to ensure success. However, the smart bank will implement a process that is repeatable and instantly deployable in the event of either a real default or testscenario, thereby minimising the impact on the business."

Formicary's team combines an in-depth understanding of the Default Management Process, experience of working with LCH.ClearnetSwapClear, including the migration of over 1.8million trade sides and design of the ClearLink API. It is headed up by Dee Dervish, who has worked in derivatives market trading for 15 years, and held senior roles at major financial institutions including Deutsche Bank, WestLB and Mitsubishi UFJ.

About Formicary
Formicary is a leading provider of consultancy and integration software to the financial services industry. We specialise in implementing, augmenting and building integrated technology solutions that streamline business processes in the front, middle and back office for clients ranging from tier one investment banks to hedge funds and fund administrators. Our strategic business focus combined with in-depth expertise in areas from legacy computing models to cutting edge technologies helps clients improve their productivity, performance and return on investment. Founded in 2000 in the UK, the company has offices in Europe, North America and Asia Pacific.
www.formicary.net