Formicary Banking Group (FBG) was first involved with the Default Management Process (DMP) during the Lehman Brothers' Default in 2008.
Our team of OTC specialists played an important role working along side our client - LCH.Clearnet / SwapClear during this time.
Nearly three years later, our team has grown and expanded their mandate. Twenty six Formicary professionals were on site at the peak of the Refresh Project, working on Default Management, Risk, Client Clearing and the integration of the new clearing platform and the migration of all member trades from the legacy system.
Formicary are specialists in the trade migration process. The migration of over 1.8million trade sides involving multiple members however, was a new and challenging task but one which Formicary was prepared for. Armed with the tools developed at Formicary and the knowledge of SwapClear's internal procedures and models, the accuracy of the migration was always assured.
SwapClear prides itself on the manner in which they successfully managed the Lehman $9trillion interest rate swap default, comprising over 66,000 trades. This success was equally attributed to the member banks and their technical readiness to participate in the DMP.
All members undergo a FSA regulated, periodic DMP Fire Drill to ensure that their ability to handle another default is tested, up to date and accurate. All potential new members are tested before acceptance, by undergoing a personal Fire Drill, often referred to as the "Driving Test".
Member participation of the Fire Drill or Driving Test involves what could be described as a 'migration' of trades from the "Auction Pack", created from the portfolio of the defaulting bank in the SwapClear system. These trades which include the Hedge Trades that were executed during the risk neutralisation phase by the Default Management Group (DMG) need to be migrated / imported to each members internal risk management / trading system and valued according to the instructions provided by SwapClear.
The tools developed by Formicary in their many migration projects, including the Refresh project have been adapted to incorporate the knowledge of the Fire Drill and the member reporting provided by SwapClear to ensure the accuracy of the imported trades. This tool is now available to all member banks and potential new members for use in the event of a real default, a DMP Fire Drill or a Driving Test.
The Default Management Process Portfolio Analysis Tool has become an essential part of any trade export / import reconcilliation where accuracy is paramount and time is critical.
Please contact dmp@formicary.net for further information about this tool and to arrange a demonstration, or if you would like to discuss how Formicary can work with you.
If you require analysis or development to transition your default management process from the use of ims format auction files to FpML format auction files, please contact fpml@formicary.net.
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