Note : Les descriptions sont présentées dans la langue officielle dans laquelle elles ont été soumises.
CA 02286151 1999-10-06
WO 98/53417 PCT/US97/08470
METHOD AND SYSTEM E'OR IMPROVED
COLLATERAL MONITORING AND CONTROL
BACKGROUND OF THE INVENTION
This invention relates to a method and system for
improved collateral monitoring and control and, more
particularly, to a computerized system which automatically
receives transaction messages, reviews account information, and
determines whether sufficient collateral is provided in accounts
in view of risk considerations associated with the collateral,
investments and currencies.
There are many computerized systems on the market today
used in banks, securities firms, and the like. For example, U.S.
Patent No. 4,346,442, entitled Security Brokerage-Cash Management
System, was assigned to Merrill Lynch, Pierce, Fenner & Smith
Inc. of New York and issued in 1982. This patent is directed to
an early cash management system which used data processing to
improve securities brokerage/cash management supervision. It
allows the financial services firm to provide for automatic
investment of free credit cash balances in interest bearing
accounts, so that an investor that has free cash in his/her
investment account automatically receives appropriate interest
payments.
U.S. Patent No. 5,262,942 entitled Financial
Transaction Network is directed to a financial network for
maintaining a number of mutual fund portfolios operating in
different currencies. The host processor acts as a
communications switch validating incoming transaction requests
and routing them to a central transfer agent system for
execution. The host processor maintains central records that can
be queried through the host.
U.S. Patent No. 4,713,761 entitled System for
Centralized Processing of Accounting and Payment Functions is
directed to a computer implemented system for determining and
accounting for the cost of transactions . The system particularly
determines and accounts for the cost of shipping goods. The
system requirements include an input device which is located at
a shippers location and a central data processing facility. In
other words, this system tracks expenses as well as products.
CA 02286151 1999-10-06
WO 98/53417 PCT/US97/08470
U.S. Patent No. 5,025,373 entitled Portable Personal-
Banking System is directed to a portable personal banking system
comprising a host computer and at least one portable terminal
among a variety of terminals including automatic teller machines
and personal computers. The portable terminal provides a range
of banking services over an automatic dial-up telephone
connection to the host bank computer. The personal terminal
comprises a keyboard and display capability with minimal key
requirements and display capacities. This patent deals with
concerns regarding remote computers versus bank servers and
issues of capability and access.
In today's global marketplace, banks, financial
institutions, securities firms, insurance companies and other
financial institutions must be concerned with maintaining
appropriate collateral for securing loans and the like. Each
institution sets up its own lending requirements, and collateral
needs for each of its customers. However, in today's global
marketplace, the collateral may depreciate in value faster than
the repayment of loaned funds; for example, if a loan in U.S.
dollars is being secured against a foreign security, the foreign
security could depreciate in dollar terms by a decrease in price
of the security, or a decrease in the foreign currency value
against the U.S. dollar. Accordingly, it is desirable to provide
a collateral management tool that controls and tracks collateral
against liabilities and can be used to determine whether or not
to extend margin against securities or other products such as
derivatives, tri-party agencies and insurance letters of credit.
SUMMARY OF THE INVENTION
The present invention provides a system and method for
the management and tracking of collateral using a computer
system. The system and method accesses a plurality of databases
which are preferably relational databases to allow for the
following collateral processing actions: validation of an
account's existence within the system; the validation of the
securities' existence within the system; retrieval of all
confirmed and unconfirmed account positions effecting available
2
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WO 98/53417 PCTNS97/08470
collateral for the account and an account in its collateral
group; retrieval of the account's security, cross-currency
haircut and acceptability tables; the validation of the
securities' acceptability by its depository, class, tenor and
rating in the acceptable table; the retrieval of all threshold
' and minimum call information for the account; calculation of the
optimal haircut application by multiplying the security haircut
table by the cross-currency haircut table and sorting the
resulting figures and currency security class pairs in descending
order; the calculation of the local market value for each
position and proposed position; the conversion of the market
values to U.S. dollars, retaining an indicator of the local
currency; applying security haircuts to the resulting U. S . dollar
market values; retrieving collateral requirements (resulting from
liabilities) in the U.S. dollar, grouped by originating currency;
matching of like currency collateral to collateral requirements;
matching remaining requirements to remaining collateral by
finding the highest currency/security class pair in the
remainders and working down the optimization list; and applying
minimum calls or thresholds and reporting any remaining
shortfalls.
Taken together, the foregoing collateral processing
method validates that the collateral in an account satisfies
requirements based on acceptability rules; determines if the
movement creates a shortfall; and provides approval or rejection
processes to manage the transaction message through the
acceptance and settlement cycle.
The front end of the system is defined by a plurality
of personal computers running a graphic user interface (GUI) .
The back end of the system, which handles the processing, is a
client/server based network designed to communicate with the
personal computers over conventional telecommunication lines.
The personal computers communicate over a network to a message
router, which receives all incoming requests and data and
forwards them to the appropriate server. The message router also
communicates with a switch which enables it to transmit data and
3
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WO 98/53417 PCT/US97/08470
requests to SWIFT and to custody systems such as COSMOS and
SECORE, and to receive data and requests from them.
Accordingly, it is an object of the present invention
to provide an efficient intra-day, paperless collateral movement
and control processing system.
It is an additional object of the invention to provide
a system and method that produces on-line client statements to
avoid report production and delivery.
Another obj ect of the invention is to allow for the
performance of real-time collateral position, valuation,
shortfall and acceptability checks, thereby permitting tighter
haircuts, reduced risk exposure, and more competitive pricing.
Still another object of the invention is to provide
enhanced security, such as requiring dual signatures for most
operations, such as creating tables and entering collateral
movement instructions.
Still another object of the invention is to allow
enhanced user control over the system by allowing users to set
up a variety of rules and haircuts, based on client/counterparty
agreements, to control the movement of collateral, such as
acceptability rules, shortfall rules, security haircuts, and
cross-currency haircuts. The system automatically blocks all
collateral movement that does not meet the criteria specified in
the rules and haircuts.
Still other objects and advantages of the invention
will in part be obvious and will in part be apparent from the
specification.
The invention accordingly comprises the several steps
and the relation of one or more of such steps with respect to
each of the others, and the apparatus embodying features of
construction, combination of elements and arrangement of parts
which are adapted to effect such steps, all as exemplified in the
following detailed disclosure, and the scope of the invention
will be indicated in the claims.
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WO 98/53417 PCT/US97/08470
BRIEF DESCRIPTION OF TH,~ DRAWINGS
For a fuller understanding of the invention, reference
is had to the following description taken in connection with the
. accompanying drawings, in which:
Fig. 1 is a block diagram of a collateral monitoring
and control system in accordance with the present invention;
Fig. 2 is a detailed block diagram illustrating the
system layout of a collateral monitoring and control system in
accordance with the present invention;
Fig. 3 is a flowchart illustrating an overview of the
collateral processing methodology in accordance with the present
invention;
Fig. 4 is a detailed process flow diagram illustrating
the steps carried out in a collateral monitoring system in
accordance with the present invention;
Fig. 5A is an exemplary screen printout for a
notification letter indicating a margin call;
Fig. SB is an exemplary screen printout of a trade
initiation form for entering trade data into a computerized
system in accordance with the present invention;
Fig. SC is a transaction master template for use in the
present invention;
Fig. SD is a template for adding a margin agreement
into the collateral monitoring and control system in accordance
with the present invention;
Fig. SE is a template for adding an additional client
into the collateral monitoring and control system in accordance
with the present invention;
Fig. 6 is a block diagram illustrating a system and
network architecture in accordance with the present invention;
Fig. 7 is an entity relationship and data source
diagram in accordance with the present invention;
Fig. 8 is a functional flow diagram of a risk
' information system in accordance with the present invention; and
Fig. 9 is a block diagram indicating the links between
the collateral monitoring and control system and the remaining
system architecture of a lending institution.
_ CA 02286151 1999-10-06
~~5 1 ~ ~ U L 199.
_ _
DETAILED DES RIPTION OF TIDE PREFERRED
Reference is now made to the figures, which illustrate
a system and method in accordance with the present invention.
With particular reference to Fig. 1, a collateral monitoring and
control system, generally indicated at 100, constructed in
acccr3a-~c~ w~t'~ the instant invention, is depicted. System 100
includes a plurality of user interfaces 102 running a GUI. In
the preferred embodiment, user interfaces 102 are personal
computers that run on, for example, the windows operating system
by Microsoft Corporation. This is the front end of system 100.
:;ser interfaces 102 are coupled to network 104 which is
preferably a local area network. Network 104 is electZ;onically
coupled via communication lines 106 to message router 108.
Message router 108 is coupled to a plurality of servers including
collateral server 110, TPA server 112 (tri-party agreement), GPS
server 114, report server 116 ar.d swift server 118.
Message router 108 is also electrically coupled to
switch 120 via curve.~.tional tel eccmmunication lines or the 1_ke.
Switch 120 is coupled to SWIFT 122. Switch 120 is also coupled
to custody system 124.
Referring generally to Figure 1, system 100 is accessed
by users via user interfaces 102. User interfaces 102 are
networked via a local area network or a wide area network. The
network is preferably a Novell Ethernet. Message router 108
"...
receives all incoming requests and data and forwards them to the
appropriate server 110-118. The router also communicates with
switch 120 which transmits data and requests to SWIFT 122 and
custody systems 124. Message router 108 is preferably a router
network with routing capability at locations where servers are
located; far example, in a global network separate routing
capability is provided on each continent where servers are
located. Custody systems 124 could include COSMOS, a cash
custodial system in London, or SECORE, a securities custodial
system also in London.
Particular reference is next directed to Fig. 2 which
is a block diagram illustrating a system layout. Collateral
monitoring and control system, generally indicated at 200,
6
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CA 02286151 1999-10-06
3 JUL ~g~.
___:
_ includes four main parts, a front end system 202, a data
processing system 204, a portfolio valuation system 206 and a
reconciliation system 208. Front end system 202, portfolio
valuation system 206 and reconciliation system 208 are each
coupled to data processing system 204.
F,.~nt end ws~e~~ 202 irc_udes vis~.:a= bas'_c Gui 2;0
which sits upcn an I'='S plat's=-n 2.2. Visual basic GLi 2i0 is
also electrically coupled via wire 214 to open database
connectivity 216. Open database connectivity 216 is electrically
coupled to database library 218.
Front end system 202 is coupled to data processing
system 204 via two secarate links. Firstly, visual basic GUI 210
is coupled to message routers 230 via ITS platfo:m 212 and Mlayer
213. - (Note that two message routers 230 are illustrated;
however, additional Tessage routers may be required depending
upon the size of the app'ication.) Additionally, database
library 218 is direc=ly coup=ed to ccllateral database 232 and
try-par~y agreeTe.~.t ca~aLase 233.
Data processing system 204 receives inputs from the
user via message routes 230 and collateral database 232.
Collateral database 232 is electrically coupled to collateral
product server 234 which is in turn electrically coupled to
message routes 230. Additionally, collateral product server 234
is electrically coupled to password file 236. Password file 236
must be in a s'_m=1 a. format to the various databases . In the
preferred embodimer.~, the databases use Sybase technology.
Message routers 230 are a'_so electrically coupled to security
manager 240. Security manager 240 is coupled to security manager
error file 242, aut:.orization file 244 and VAX UAF 246. The
message routers 230 are also electrically coupled to GPS batch
server 248, BST batch serve. 250 and BCT batch server 252. HST
batch server 250 and BC'~ batch server 252 are each electrically
coupled to reconciliation system 208. Alternatively, GPS batch
server 248 is electrical) y coupled to portfolio valuations system
206 through prices, rates, rating, assets 254.
Reconciliation system 208 receives data feeds such as
SECORE which are forwarded to BST batch server 250 and COSMOS
7
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~I , CA 02286151 1999-10-06 7 ~ 0 8 4 7
_ _ . ~3~UL1
__.:
feeds forwarded to BCT batch server 252. SECORE and COSMOS are
securities custodial systems provided in London and are preferred
systems for use in the present invention. The process of
reconciliation is generally one wherein records are sent to the
collateral server and the collateral server reads the SECORE
n~~;r:-~r ~~'o~-~:a''_on and compares with its own security
positions. If a dif°erence is found, then a report is sent to
a report file. The report file also has information on non-zero
security positions that were not on the reconciliation file, and
positions or. the reconciliation file that were not found in data
processi::g system 204. A report is automatically printed at the
end of t'.~.e reconciliation process. -
F_..~.a=ly, a : externa'_ feed 260 is received from a
ser-v=ce suc:: as Exte; or Muller which is forwarded to a valuation
system 252 w::ic'.~. is then fcrwarded to prices, rates, ratings,
assets 2~4.
Speaking more generally of system 200, it is based upon
the _ITS platfor~; a~d ooe.~. database connectivity 216. The ITS
ccmpore.~.. 2~2 is respons'_ble for system security, report
requests, a..~.d all batch sewer communications. Open database
connectivity 2.5 is responsible for all database operations
betwee.~. front end system 202 and the servers.
Imple~ne.~.tation of the ITS messaging architecture
requires a plurality of servers communicating using a number of
message routers 230. The network con.-section between the servers
(i.e., ccylatera'_ server 234, GPS batch server 248, BST batch
server 250 a:~d BCT batch se=-ver 252) and the message routers 230
enables t'.~.e ITS system to be d'_stributed over a number of VAX
processors. T:~e servers perform their computation tasks
according to messages received from their adjacent message
routes. T!:e se=-ver transmits the results back to the user, or
onto the next server using the same message routes network.
Communication is prohibited between servers other than through
the message routers. Each server is a single VAX process, or a
collection of vAX processes that performs a specific task within
the ITS system. Preferably, there are plural ITS servers
functioning as batch servers. All batch servers feed external
a
'~F~~ ~~ ~ 1~.. ~.
CA 02286151 1999-10-06
~G~'~ 9 7 ~ Q 8 ~ ? 0
information to the collateral server during nightly batch
processing. The GPS batch server moves securities information,
including prices and exchange rates to and from portfolio
valuation system 206. Portfolio valuation system 206 is
responsible for receiving prices and exchange rates from external
,. curia master
_ee s . - ~ '
on a daily basis.
Open database connectivity 216 allows most client
server communication to bypass the ITS server, and channel
traffic directly to the databases via database library 218. The
client application trus establishes three server connections: one
to the message router 230, one to collateral database 232 and
another database connection to tri-party database 233.
Particular reference is next directed to Fig. 3 which
is a flowchart illustrating the collateral processing
methodology. The process begins at block 300 with the receipt
of a collateral movement instruction. The process then proceeds
to decision block 302 and asks whether the collateral moveme.~..
instruction is a receive or deliver. If the instruction in b~occ
300 is a deliver, then the process moves from decision block 302
to decision block 304 and checks whether there is a shortfall.
If there is no shortfall, decision block 304 issues a "no"
response ar.d proceeds to block 306. Block 306 causes the process
to send back the collateral movement to the custody system for
settlement. The process then proceeds to block 315 where an
instruction goes to the pending queue . The process then proceeds
to block 320 when the instruction is settled and proceeds to
block 322 to confirn message.
Alternatively, if the instructicn is a collateral
receipt in block 300, the process moves from decision block 302
to decision block 308 and asks whether the receipt is acceptable .
If the receipt is acceptable, a "yes" response in decision block
308, the process proceeds to block 306 and sends back the
collateral movement instruction to the custody system for
settlement. Then the process moves to block 316 through 322 as
described above.
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_ CA 02286151 1999-10-06
. . _ . ~-~~ ; . ~ ..
~ 3 JUL 1999
If the response in block 308 is "no" that the received
collateral is determined unacceptable, the process moves to block
310. Additionally, if a shortfall is found in block 304, a "yes"
response, the process proceeds to block 310 and an instruction
is sent to the exception queue. The process then proceeds to
~i~i.o,n-hl~k 3~ 2 and asks wheeze= a user v'_ew or ove=ride
exception is desired. I' a "..~.c" response is received in block
312, the process proceeds to block 318 and the exception is
remedied. The process then proceeds back to decision block 302.
Alternatively, if a "yes" response is received in decision block
312, the process proceeds to dec_s:.on block 314 and asks whether
the override is verified. If the override is verified', a "yes"
response, t'.~.e process proceeds to decision block 302.
Alternatively, i' the override is not ver~'ied, a "no" response
in decision b:cck 314, the process re:.::r.~.s to block 310 as
described above.
More ge~erally, F'_g. 3 illust:ates that the system
receives co?'_a=seal ~~cveTe.~.e ;ressaces 3~~0 from a nu;n'.~,er of
product and custodial syste~a through ou_ the orga_rization in
which it is employed. First a dete~nina:.io~ is made whether the
message is receive o. deliver collateral i.~. decision block 302.
If the message is to receive collateral, a determination must be
made whether it is acceptable in decis_on block 308. If it is
acceptable, it goes to the pending queue is block 316 and a
,:
release message is sent to t'.~.e c:aecdy system to perni~
settlement in block 320 . Al teraatively, i= it is not acceptable,
it goes to the exception queue in block 3_~.
Aloe=::atively, if the collateral mcvemene instrsction
is to deliver in block 302, fi=st a deter-n;nation is made wrethe=
there is a shortfall in decision bloc: 304. If there is a
shortfall, an i:atruction is sent to the exception queue in block
310. Alternatively, if there is no shortfall, it goes to pending
queue in block 316, and a release message is sent to the custody
system to permit settlement. In each instance, when an
instruction is routed to the exception queue in block 310, the
only way it can leave is to remedy the problem that caused the
exception. or override the exception.
QED S~E~
. CA 02286151 1999-10-06
~~~ ~w'= ___
Particular attention is next directed to Fig. 4 which
illus~rates the collateral processing actions in greater detail.
The process is initiated with a collateral movement instruction
at b=ock 400. The process then moves to block X02 and validates
the account's existence in the system. After validation of the
r _O
accc::.~.~ _.. ~ -
ex'_s~erce in the system at bicck 404. Then, the process moves
to block 406 and retrieves all confirmed and unconfirmed account
Doss=ions affecting available collateral (delivers) for the
acccuzt and any account in its collateral group. The process
::ex~ mcves to block 408 and retrieves the account's security,
cress-currency haircut and acceptability tables. These are
tables located i~. the relational database.
Af ten bl ock 408, the process continues to block 410 and
val_dates the security's acceptability by its depository, class,
tenor and rating in the acceptability table (for receive
messages). A=ten block 410, the process proceeds to block 412
a.-.~ :etrieves a.l threshold and minimum call information foz the
account . The ::ccess proceeds to block 414 and ffinds the optimal
haircut apcl'_caticn by multiplying the security haircut table by
the cross-currency haircut table and sorting the resulting
figures and currency security class pairs in descending order.
Af ~er block 414 , the process proceeds to block 416 and
calc::lates the local market value for each position and proposed
pcs_ticn. The local market value is the market value in the
country in which the position is held. The process next proceeds
to block 418 and converts the local market value to the base
currency. For a G.S. company, the base currency will preferably
be L.S. dollars. However, an indicator must be maintained of the
local currency. T_n block 420, a security haircut is applied to
the resulting base currency market value. The process then
proceeds to block 422 and retrieves collateral requirements
(resulting from liabilities) in the base currency, grouped by
originating currency. The process then proceeds to block 424 and
matches like currency collateral to collateral requirements.
Next the process moves to block 426 and matches the remaining
requirements to the remaining collateral by finding the highest
11
~?ED
_ CA 02286151 1999-10-06
~ ~~97/0847L?
_ ~~~;~~ '~ J U L 1999
currency/security class pair in the remainders and working down the
optimizing list.
The process then moves to block 428 and applies minimum
calls or thresholds for delivers. Finally, the process moves to
block 430 and reports any remaining shortfalls (for delivers).
.. T1 T
message.
Taken together, the process as disclosed in Fig. 4
validates that the collateral satisfies the requirements based
on the acceptability rules. Additionally, the process determines
if the movement of collate=al creates a shor:.fa~l and provides
approval or rejection processes to manage the message through the
_~ acceptance and settlement cycle.
If any cf the processing actions shcw
shortfalls, the message is forwarded for override approval cr
further monitoring (for future messages that will correct the
situation) to t':e appropriate monitoring group.
In practice, the mcnitoring group is set up and the
computer program gives off an alarn or. the screen indicating than
a new message requires group atter_tion. The monitoring group is
enabled with the ability to retrieve any message requiring
consideration at any time. The reviewer can then approve or
continue to hold the message for further action.
r=''=,) When the main process requests collateral position
retrieval, such as block 406 0~ : ig. 4, the following information
is obtained from the relational databases Lhat a=a accessed by
the process.
ia~ i ateral Vai uatian IT'.~Or~ldtion
1. Security identifier
2. Units
3. Price multiplier (price per units i:~dicator)
4. Extender (foreign exchange dominance
indicator)
5. Latest exchange rate
6. Security class code
7. Rating
8. Effective maturity date
12
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CA 02286151 1999-10-06
WO 98/53417 PCT/US97/08470
9. Pricing currency code
10. Unconfirmed-Confirmed indicator
11. Not valid indicator
. 12. Price
13. Price date
The system retrieves the most recent price and price
date for all unconfirmed and confirmed security positions within
the specified collateral group. The system also retrieves the
cash positions of all currencies in the collateral group.
The system then determines available collateral by
taking the values of all conffi rmed positions and subtracting the
values of all unconfirmed deliver messages, including the pending
message that initiated the valuation request.
When the process calculates the local market value,
such as in block 416 of Fig . 4 , the system f first checks that each
position is valid and then performs the following steps:
1. Computing a market price portion as shown
below:
when Price Multiplier Flag equals zero,
local market value equals units * extender
* price;
when Price Multiplier Flag equals one, local
market value equals units * extender /
price;
2. Adding the accrued interest applicable for
the appropriate fixed income securities,
based upon the account setting for the
accrued f lag;
3. Converting the market value to the system's
base currency (U.S. dollars), using the
formula ;
base market value equals local market value
(plus accrued) / latest exchange rate.
When applying a security haircut as required by block
420 of Fig. 4, the system retrieves the haircut table for the
' collateral group being revalued and then takes the following
steps:
13
~ \ CA 02286151 1999-10-06
_ . E:.-~ ~rn~ 97~08~.70
1 ~ JUI.1999
____
The system checks whether the position is valid
and applies a zero valuation for invalid positions. For all
valid positions the system takes the following steps:
1. Calculating the years until maturity by
taking the system date and subtracting it
°--om t'.:e cosi~;or?s ef~ec;.ive maturity date;
2. ~etrievi:~g t::e record in the haircut table
containing the position's security class,
rating and maturity (if applicable);
3. Using the contents of the record to
cal curate t'.~.e position' s margin
contribution, as shown below:'
- . when margin type indicator equals P;
contribution equals base market value
minus margin);
whe.~. margin type indicator equals E;
cor.c=ibutior. equals (100 * base market
va'_ve / marg'_:~i .
W'.~.er. tae main process requests the cross-currency
haircut as described in block 408 of Fig. 4, after retrieving
liability information, the process matches collateral to
liabilities, using the currency of the liabilities and the
currency of tie col=ateral position. The process performs the
match in a ma..~.ner t at minim'_zes the applied haircut, in order
~, ~,~:' . ,
to maxi~n~ze t~:e col'_atera~ ma=gir. contribution.
'.''.:e following example is provided to explain how the
match works. The system begins with U.S. dollar liabilities.
,_ matcres the car.~~=med U.S. dollar collateral to the U.S.
dollar trade colla~eral requirements until the margin requirement
is met cr the U.S. do'_lar collateral is used. The system then
performs the same match far each currency in the liability
portfolio against confirmed cull ateral . Next, the system applies
any excess confirmed collateral by currency to any existing
requirements from different liability currencies minus the cross-
currency haircut. It starts with the cross-currency pair that
maximizes the collateral contribution against the liability, as
determined by the cross-currency haircuts. when the requirement
14
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_ CA 02286151 1999-10-06
f~ ~~''~ ~~~~~8~.~'A
~1~~13 J U L 1999
_ is met or the confirmed collateral runs out, the system chooses
the next most beneficial cross-currency pair to fill the
collateral requirement (i.e., the pair that next maximizes the
collateral contribution).
The system determines the currency pair that
,. ~ ' he
_ __
percentage decimals for each combination of security class and
currency pair in the security and cross-currency haircut tables.
It then sorts the figures that result in descending order (least
haircut first) and applies collateral in the order determined in
the list, selecting the collateral of the currency and class
indicated by the pair with the highest percent.
The system tracks the liability margin requirement
satisfied by ccnfirmed available collateral and the net
contribution margin (risk adjusted value) of the available
confirmed collateral. The ~available confirmed collateral~ is
def fined as the cor.~ irned collateral position, minus any depending
deliver-y message (i~cluding the pending message).
Furthermore, when a receive collateral movement message
reaches the system, the system reviews the relevant accounts or
collateral group accounts to determine if the concentration
limits, as defined in the appropriate acceptability table, have
been breached.
If a request of an acceptability check is issuing a
',~....
report request, the system will retrieve the appropriate
acceptability table and all the positions in the associated
account . The account will be valued as previously described, and
totals for all values under consideration in a table are filled
with the collateral contribution values in the accounts for each
limit category.
The system also performs a number of shortfall
processing actions to determine whether the confirmed collateral
held in an account satisfies the collateral requirements, as
described by the account's liabilities. The system performs
these actions whenever it receives a new pricing that effects
existing collateral positions, a deliver or cash withdrawal
CA 02286151 1999-10-06
. ,
I3 JUL ~99g
message, and requests by system report processes that they
require these actions.
Shortfall processing requires collateral revaluation,
haircut application, cash application, comparison, and reporting.
The system retrieves the minimum call amount for the collateral
Qro~tn recor3. The mi.~.i~num ca.'_ ' s added to the cor.f i~.-.ned margin
contribution. result fol'_owi:~g ha'_rcut application. The total is
then used to compare for the shortfall check. The system then
subtracts the outstanding liabilities from the total net
collateral margin. contribution to determine the shortfall. If
the result is negative, te~ a shortfall warning is issued.
Alternatively, if the result is zero or greater, then no
shortfall exists. Accit'_enai~y, if to shortfall check was
initiated by t'.~.e receipt of a message, t'~e system will return the
results to t~:e izitia=i:~g process. ,
par~icu'_ar reference is next directed to Figs. SA-5E
which each il_ustrate exemplary templates or forms generated by
the compute= syste~: 'c= i-:=°-=ac=_-g with: the users.
Par=ic~.:lar=y, Fig. 5A is a for-n margin call notice that
is ge~.erated by the sys~em when a bank's customer has
overextended their margin ba'_ance.
Fig. 53 is a trade initiation computer screen in
accordance wi~'.~. t'.~.e prese.~.t invention. which enables a user to
enter the appropriate i:formation to begin a message process.
Fig. SC is a ccr~puter sc=een for the transaction master
which indicates all trar_sactiens for a particul ar client under
a given margi.~. agreement and file .
Fig. 5~ is a template o. computer screen for adding a
margin agreement to the system. The template illustrates all the
required parameters, and each parameter is then stored in an
appropriate look-up table of the relational database.
Fig. SE is yet another exemplary template or computer
screen for adding a client to the system. The template indicates
the required information for adding a client to the system, and
the information input is also added to appropriate tables of the
relational database.
16
AA~EhiDED SHEE'1
CA 02286151 1999-10-06
f:..:.
13 JUL 1999
Particular reference is next made to Fig. 6 which is
a block diagram illustrating the system including the
international letter of credit system and network architecture.
The architecture is broken up into three main sections which
include the main data processing center, generally indicated at
sot, a r~mote use_- system, generally indicated at 504, and the
reconciliation system, generally indicated at 506.
Reccnciliation system 506 is electrically coupled to data
processing center 502 by global network 508 and remote user
system 504 is connected to data processing center S02 by global
=outer network 510. In some embodiments, global network 508 and
global =outer network 510 may be the same global route= network.
''' Data processing center 502 includes a VAX cluster 512
which is essentially similar to the servers of Fig. 2 a.~r~ s disk
storage array 514 and a VAX 6630 running a Sybase relational
database indicated at reference numeral 516. These units are all
electrically coupled via an ethernet indicated at 518 and are
electricall~~ coupled to a hub 520. In the preferred embodiment,
hub 520 is manufactured by Synoptic. Hub 520 is also coupled to
fire wall 522 whicz is additionally coupled to a =outer 524 (in
the preferred embodiment route=s 524 are manufactured by Cisco
Systems Inc.). Route=s 524 are then coupled to global =outer
network 510. Additionally, hub 520 is coupled to LAT 526 which
is electrically coupled to global network 508. Global network
508 is electrically coupled to reconciliation system 506 which S~a
includes a switch for receiving and transmitting SWIFT megsages~
Additionally, the COSMOS and SECORE feeds 530, 532 respectively
are received and are tape transferred to VAX 534. VAX 534 is
also referred to as a transactor. From VAX 534, the
reccnciliation information is transmitted over global network 508
to data processing center 502.
Remote user system 504 includes a plurality of user
interface devices 540 (personal computers) , a network file server
542, and a plurality of printers 544. User interface device 540,
file server 542 and printers 544 are ali electrically coupled via
an ethernet and are coupled to a hub 546. Hub 546 is
17
~MEPI~~D SN~x
CA 02286151 1999-10-06
WO 98/53417 PCT/US97/08470
electrically coupled to a router 548 which is additionally
connected to global router network 510.
Particular attention is next directed to Fig. 7 which
illustrates an entity relationship and data source diagram. This
diagram illustrates the interconnection of the various elements
of the collateral monitoring and control system, with the
majority of the blocks indicating particular table database
entities. Of course, the bank 602 and client 604 represent a
lending institution and a client that borrows, respectively. The
tables are broken into two types of tables. Single record tables
are the simp=est tables. They contain a single record with all
the information in the table. Geographic sector table 606 is an
example of a single record table.
Geographic sector table 606 consists of a single record
that includes the code for each geographic region and a brief
description of the region. There is no other information in the
table. Other examples of single record tables are currency table
608, country table 610, and industrial class table 612.
Multiple record tables contain more information than
single record tables. In a multiple record table, the identity
of the record must first be identified. This would generally be
located in an ID field. The additional records depend upon the
type of table and information required.
Attention is next directed to Fig. 8 which is a
functional flow diagram for the risk information system. It
illustrates an overview of risk management in a lending
institution. The data flow diagram specifically illustrates
where the collateral management component 710 f its within the
risk information system. Transactions and account set up
information is entered through interface 700 which is
electrically coupled to a standards server 702. Standards server
702 is electrically coupled to rapid credit administration 704.
Rapid credit administration 704 additionally receives information
from credit workstation and agreement workstations through
interface 708. New agreements received by rapid credit
administration 704 are input into the collateral management
system 710. Rapid credit administration 704 then transmits
18
CA 02286151 1999-10-06
~'G~~,~ 97/08470
1 ~ ~UL 1999.
facility, limits, tenors, and agreements to credit engine 706 and
transmits facility, risk ratings, SIC, etc. to rapid portfolio
management 726. Credit engine 706 in turn transmits information
on outstanding issues to rapid port~olio management 726 and
«edit er~a,~iv~g 706 transmits information on facility
~_
nu ers, lim' _ .. y ' ' ~ ~ 'r '~ r° 728 . Collateral
management system 710 transacts with credi~ engine 706 and
receives gross margin requirements and transmits net margin
requirements. A main transactor 722 (which may be a VAX)
communicates with credit engine 706 arid market risk engine 718.
Market risk engi.~.e 718 also receives ma=ket factor product rates
from standards server 702, and standards server 702 also receives
:..
customer product instruments and rate information from server
716. Market risk engine 718 receives additional information from
NTR/MFVC server 720, and outputs global management reports 732.
From Fig. 8 it can be seen that the operations of a
global institution require all types of risk management. The
prese~.t invention provides one type of risk management that
requires proper collateral in accordance with agreements with
clients and continuously updates and manages the collateral
taking into account market swings and currency swings to prevent
unnecessary risk taking by a lending institution.
Fig. 9 is a block diagram providing an overview of the
integrated systems used in a global lending institution.
Particularly, Fig. 9 illustrates an overview of the integration
of a collateral management platform within the overall network
system. A collateral management platform 800 is electrically
coupled to a central switch 802. Additionally, the collateral
management platform is electrically coupled to a transactor 804
and files are transferred therebetween by file transfer protocol.
Central switch 802 is electrically coupled to the
reconciliation function indicated as COSMOS 806 and SECORr 808.
COSMOS 806 and SECORE 808 are electrically coupled to transactor
804 and transfer information through file transfer protocol.
Additionally, COSMOS 806 transacts with CBII client screen 812.
CHII client screen 812 allows clients to review information.
19
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CA 02286151 1999-10-06
WO 98/53417 PCT/US97/08470
In other words, information passed through central
switch 802 is transferred intra-day through the central switch
802 in SWIFT format. Information transferred through transactor
804 is transferred as batch data in ASCII flat-file format.
It will thus be seen that the objects set forth above,
among those made apparent from the preceding description, are
efficiently attained and, since certain changes may be made in
carrying out the above method and in the construction set forth
without departing from the spirit and scope of the invention, it
is intended that all matter contained in the above description
and shown in the accompanying drawings shall be interpreted as
illustrative and not in a limiting sense.
It is also understood that the following claims are
intended to cover all of the generic and specific features of the
invention herein described and all statements of the score of the
invention which, as a matter of language, might be said to fall
therebetween.
