Structure solutions provider OpenGamma is partnering up with dealers and other participants in the over-the-counter (OTC) derivatives market to deliver an open-source solution for bilateral margin on derivatives trades.
The solution will implement the International Swaps and Derivatives Association’s (ISDA’s) final standard initial margin methodology, which is currently in development and will meet the Basel Committee’s requirements due to be implemented in December.
Full transparency and open access to source codes intend to empower industry participants to have an independent and verifiable calculation that, for the first time, will not be controlled by any one entity.
The source code used for calculation of margin will be available to all market participants, and they will be able to use it for their respective utilities and proprietary trading systems. This could lead to an industry-wide consistency that was not previously possible.
The first release of the solution will be a historical value of risk model from the original ISDA paper. This will be followed, subject to industry approval, by a new version based on different methodology.
Source codes will be released on an open-source website and collaborative software development environment, Github.com. Here, all open source models will be in one location, allowing for evaluation and verification of various methodologies, and feedback from market participants.
CEO of OpenGamma Mas Nakachi said: “With capital scarce, financial firms are more focused than ever on developing high-value, proprietary innovations rather than re-creating industry-standard methodologies.”
He added: “That’s why we’re working with the industry to streamline and democratise the development of market structure solutions, which also fundamentally reduces operational and systemic risk through the inherent transparency of open source code. We believe the future of OTC market structure will be driven by the need for transparency and will therefore be based on open standards.”
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