Success Stories

Credit Derivatives backlog reduction by 50% before regulatory deadline for A Leading Derivatives House

• Back Office unable to cope with Front Office trading volume growth in Global OTC Derivatives market – Volumes up nearly 48% in the first six months of 2005 and 128% over 2004
• Leading to Huge backlogs of confirmations outstanding
• Shortage of appropriate talent with domain knowledge and experience adding to the problem
• FED's intervention: Major Dealers (List of 14) to reduce their outstanding confirmations > 30 days by 30% - 31st Jan 2006; This makes immediate clearance of Derivatives Trade confirmation backlogs imperative.
• Unmatched confirmations exposes the client to Significant Credit Risk & Counterparty risk
• Inefficiencies in Back Office could lead to Front Office volumes being curbed
• Non Compliance of FED directive timelines could lead to serious regulatory repercussions

HCL Solution

HCL does three key processes in the OTC Derivatives Operations – Indexing of Confirmation Documents, Reviewing of the documents for economic and non-economic details and mismatch resolution by following up with various entities such as other counterparties, Middle office of the client, etc.

• With no immediate automation possibilities in sight, manual processes have to be persisted to reduce backlog
• Complete analysis of outstanding confirmations against the all counter parties done (with focus on aged trades > 30 days)
• Top reasons for outstanding against each of the counter party analyzed and issues resolved according to priority: Risk Based Approach followed
• Dedicated teams assigned for each counterparty to increase the level of interactions and solve issues at a faster rate
• Six Sigma initiatives: To prevent outstanding trades from moving into ageing buckets, Six Sigma was implemented at the review stage. Number of errors at 1st review stage was reduced from 7% to 3% reducing the overall cycle time of confirmations

• Pending outstanding brought down from 7179 to 3522
• While the target set by FED was to bring down the outstanding to 5025 by Jan'06, HCL over achieved the target for the client 3 months in advance
• On an ongoing basis, outstanding confirmations are resolved much earlier and faster and prevented from moving into older ageing buckets – Reducing client's credit risk and counter party risk significantly

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