FTF News recently spoke with Michael Modlock, head of sales and relationship management at NEX triReduce, about the launch of triBalance, and the product’s selection as the Best New Post-Trade Solution via the FTF News Technology Innovation awards.
(NEX introduced triBalance last year to help financial services firms grappling with multilateral rebalancing of counterparty risk exposures, among other Ops challenges. The launch has paid off for NEX as voters in the FTF News Technology Innovation awards competition picked the offering as the Best New Post-Trade Solution. FTF News got time with Michael Modlock, head of sales and relationship management at NEX triReduce (which encompasses triBalance), to talk about the awards win and related matters. In addition to his work at NEX, Modlock is a member of the CFTC’s Market Risk Advisory Committee, tasked with overseeing market conditions and reducing systemic risk.)
Michael Modlock, head of sales & relationship management, NEX triReduce
Q: Why was the triBalance service created?
A: We wanted to help reduce the systemic risk that exists through the high degree of interconnectedness between market participants, especially in OTC [over-the-counter] derivatives.
We knew triBalance could be applied across asset classes and when the uncleared margin rules were implemented in September 2016, we knew we could also help firms to reduce the bilateral exposures that drove their initial margin and funding costs.
Q: What asset classes do you cover?
A: Initially, the industry focused on FX [foreign exchange], since it represented the largest proportion of the overall exposures and costs, but it was also the easiest to solve.
From there, we quickly incorporated rates, where exposures tend to be stickier and required a more nuanced solution using swaptions. Most recently, we solved for equities, which involves even more complexity, with baskets of single names and deconstruction of indices.
Q: What was NEX triBalance’s biggest achievement in the last year?
A: We have been very pleased with the continued pace of growth, both in the adoption of triBalance by more clients, which speaks to the number of incremental improvements we were able to deliver, such as smoother workflow, introducing the equity risk class and an improvement in the efficiency of the algorithm. It was extremely gratifying to see that hard work reflected in happy clients and this award.
Q: Why does NEX triBalance focus on the multiple relationships that underlie a portfolio?
A: We are known for our multilateral, network service approach to problem solving.
Counterparty credit risk has become more important; the complexities of managing risk exposures across multiple counterparties, all moving at different speeds and across different risk classes is a full-time job.
triBalance leverages the network effect, enabling our clients to proactively manage exposures across multiple relationships without changing their overall market risk positions. This is much more effective than trying to address relationships bilaterally.
Q: Why has it been important for NEX triBalance to leverage cutting-edge technology to optimize operations for over-the-counter (OTC) derivative portfolios?
A: Market participants in derivatives face more challenges than ever, and their time and capital need to be employed effectively.
As a service provider, we keep attuned to what clients need in order to use our services in the easiest way.
For triBalance, this includes automated feeds to receive the risk sensitivities we need, connectivity with Thomson Reuters TRTN and MarkitServ for STP [straight through processing] of new trades, as well as the ability to execute via SEFs [swap execution facilities] in the future.
Q: What can you tell us about NEX triBalance’s plans for 2018 and beyond?
A: The credit and commodities risk classes are also applicable to triBalance, as well as greater opportunities to incorporate cleared exposures alongside the uncleared ones to amplify the IM [initial margin] reduction.
Additionally, we see optimization across exchange-traded and OTC derivative contracts as a further extension. Rather than maintaining the instrument used at the inception of a trade, firms will be able to use post-trade optimization to represent their open positions in their preferred product.
Each year, another swathe of firms come into scope for the initial margin rules, so making sure triBalance remains flexible yet scalable is a key objective for us.
Q: What are the chances that NEX triBalance will be working with third-party organizations during the rest of this year and in 2019?
A: We already interact with AcadiaSoft, Thomson Reuters and the SEFs, but as we expand the service it’s highly likely we will collaborate with other market infrastructure providers along the way.
This is something we’ve done since day one with our compression service, where we work with a number of CCPs [central clearing counterparties] and firms such as CLS, DTCC and MarkitServ.
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