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CARMA

CORPORATE ACTIONS RISK MEASUREMENT APPLICATION

Corporate Actions and Income processing has long been recognised as the riskiest part of the post trade process. Many, if not all firms within the industry have suffered significant financial losses relating to this operational process.

Historically, there has never been a commercially available system or framework within which the monetary value of the operational risk associated with this process can be measured. To address this Ibacas has used its extensive Asset Services specialist knowledge and worked with leading financial institutions to develop the Corporate Actions Risk Measurement Application – Carma.

Carma allows firms to run real-time analytics of their Corporate Actions processing portfolio and produce detailed analysis of the monetary value of the associated risk exposure, from an enterprise level down to an individual account position.

Where is the risk associated with Corporate Actions processing?

In addition to the Operational Risk that can result in financial loss, Carma also takes into account the risks associated with Optimisation of Trading Strategy, Client/Counterparty Risk and Regulatory Risk.

IBACAS HAS USED ITS EXTENSIVE ASSET SERVICES SPECIALIST KNOWLEDGE AND WORKED WITH LEADING FINANCIAL INSTITUTIONS TO DEVELOP CARMA

MEASURING CORPORATE ACTIONS RISK

Ibacas has worked closely with the market to develop CARMA and the underlying risk calculation algorithms, from review of the initial concept, through design and development of the model, to final refinement and system demonstration. This approach, combined with Ibacas’s directors’ 70+ years of Asset Services experience, means that Carma has been designed to meet the needs of real world operations groups across the industry.

 

Within Carma, the risk associated with processing a Corporate Action event is defined as: The value of an event, multiplied by the likelihood that an error will occur and the impact of that error

OPERATIONAL RISK:

VALUE OF EVENT
x
LIKELIHOOD OF ERROR
x
IMPACT OF ERROR

CARMA HAS BEEN DESIGNED TO MEET THE NEEDS OF REAL WORLD OPERATIONS GROUPS ACROSS THE INDUSTRY

CARMA PROCESS & TECHNOLOGY

Carma takes in data that should already be present within your organisation, thereby minimising the integration effort required: Announcement Data, Security Data, Position Data and FX Rates for base currency conversion. The data is then run through a three-stage risk calculation process.

CARMA

OUTPUT

EVENT EVALUATION

  • Ten core valuation calculations based on ISO standards

  • Enterprise-wide

  • Entity Level

  • Event Level

  • Client Level

  • Production plus Scenarios

EXTERNAL ADJUSTMENT FACTOR

  • Event type

  • Country of issue

INTERNAL ADJUSTMENT FACTOR

  • Process optimisation

  • Resource profiling

  • Position size

  • Position types

  • Account types

BENEFITS - RISK MEASUREMENT

TECHNOLOGY

Output can be viewed through the highly configurable user interface, export via Excel or other formats if required. Carma has an open database at its core which allows wholesale interrogation of the output data outside the platform.

Carma is designed to run as a horizontally scalable stateless cluster which can be sized to meet the high data volumes in corporate actions processing. The server supports integration with other systems with lightweight REST APIs and service bus integration to provide notifications back to connected clients and processes. The front end application uses modern Javascript frameworks to give a rich user experience across all modern web browsers and many older versions.

BENEFITS

REGULATORY REPORTING

  • Anticipate the increasing focus on risk reporting by the regulators

  • Determine the value of funds to be set aside for provision based on data, rather than best guess

  • Change the value of funds set aside for provision on a regular basis as risk values change

RISK MANAGEMENT/OPERATIONAL EFFICIENCY

  • Allocation of resources to cover events with highest risk

  • More efficient resourcing and more risk focused processing model

BUSINESS CASE DEVELOPMENT

  • Ability to run scenarios to determine risk values under a different set of circumstances or TOM

  • Ability to include Risk Reduction in monetary terms to reflect the real ROI in a business case

TRADING STRATEGY

  • Allows traders/fund managers to identify the most potentially profitable events

  • Collateral/SBL recall ability based on associated risk

VALUE ADD

  • Risk per share values can be passed to clients as a value add service

CARMA RISK MANAGEMENT

The Carma Risk Management modules automatically produce real time, event level Workflow Alerts, as well as organisational and event level Risk Threshold Alerts, adding a new layer of risk management functionality.

As traditional levels of assumption about risk are becoming increasingly unrelaible, this new functionality uses the underlying risk measurement model and risk values to prioritise workloads and improve visibility across the day-to-day management of the associated operational process.

Like the core Carma risk measurement system, the modules sit independently of the underlying Corporate Actions processing system (whether a fully automated processing platform or just Excel spreadsheets), and use the same source data required for the core Carma risk measurement calculation.

This means that Carma can be integrated into any organisation without the need for complex data migrations between systems, reducing implementation times to a matter of weeks.

Both alert types can be configured and maintained by users via the Carma UI and are produced in real time. They are displayed in the relevant user’s alert inbox within Carma, received via email or sent to an external workflow/risk management system.