About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

S&P’s Fahy and Markwith Elaborate on BP Case Study for Monitoring of Risk Exposure via its Cross Referencing Services

Subscribe to our newsletter

The BP oil spill in the Gulf of Mexico has been gathering its fair share of headlines over the last few months but one of the biggest challenges for financial institutions has been in identifying their exposure to the firm and tracking the relevant entity data across its various subsidiaries. Roger Fahy, director, and Ryan Markwith, assistant manager of the Global Data Solutions (GDS) team within the S&P Valuation and Risk Strategies division, explain how S&P has assisted its customers in tracking this data in order to determine their portfolio risk exposure to BP.

The oil spill occurred on the 20 April and directly following the event and for some time after, it has been imperative for firms to track their exposure to the firm due to its ratings downgrades. Markwith explains: “The onus has been on asset managers, for example, to see whether the securities in their portfolios have exposure to BP due to direct ownership or holdings via subsidiaries.”

To this end, S&P’s Valuations and Risk Strategies division, which was formed earlier this year to replace the Fixed Income Risk Management Services (FIRMS) division and is headed by Lou Eccleston, offers a portfolio of cross referencing services to the market that Fahy says allows firms to convert headlines such as the BP oil spill into a practical response, such as the reassessment of a portfolio’s risk exposure. The cross referencing solutions stripe across a range of S&P’s various divisions, including its numbering agency subsidiary Cusip Global Services (CGS), which is currently expanding its coverage to new sectors such as hedge funds.

Markwith explains that with regards to tracking data connections, firms can either opt for a top down or bottom up approach. The top down approach allows a firm to see the aggregate universe of securities that are related to a particular firm and its subsidiaries. Whereas the bottom up approach allows a firm to focus on a particular security and track it back to its ultimate parent.

For BP, the obvious choice was to take a top down approach in order to structure a linkage pyramid of exposure from the firm at the top, down to the instruments outstanding at the bottom. S&P determined that BP had 17 parent entities, 25 related legal entities (calculated via S&P’s Security to Entity Crosswalk, which maps securities to entities), 56 issuer names linked to 57 Cusip/CINS numbers and 2,795 instruments outstanding. The vendor also offered its clients a proprietary identifier mapping service on a customised basis to their own identifiers and those provided by S&P.

“This endeavour required the efficient linkage of disparate identifiers from across the market including those provided by Fitch, Moody’s, the US Edgar database, Cusips from CGS, S&P Ratings entity identifiers, S&P Compustat issuer identifiers, D&B entity identifiers and Markit RED codes,” explains Markwith.

This data was therefore fed back into S&P’s customers’ risk systems in order to more accurately calculate their exposure to BP as part of their daily data workflow, adds Fahy.

Another recent example of such functionality in action was the tracking of European sovereign credit deterioration and the exposure of firms’ portfolios to certain countries. Markwith highlights actions that were taken on 7 July with regards to a downgrading of certain countries’ sovereigns, including Portugal, Spain and Greece. “In order to track European market contagion and understand their full exposure to these three countries, firms used S&P’s cross referencing solutions to track entity exposure on a country level,” he elaborates.

S&P duly identified a list of 108 banks exposed to their sovereign governments by domicile and allowed its customers to see the relationships of these institutions with their subsidiaries via their Cusip identifiers. The vendor was therefore able to roll up the entity data linkages for example from Waypoint Bank to Sovereign Bank and its ultimate parent Banco Santander, which was exposed to the Spanish sovereign downgrade. “Customers could see the eight major subsidiaries for Banco Santander and the securities outstanding related to these banks, as well as the 124 issuers of these securities,” Markwith explains.

Given the importance of tracking risk exposure across the markets for a firm’s business and the onus being placed on these firms by regulators to prove the robustness of their systems and controls, S&P’s pitch is likely to go down well in the market. It is not alone in the market in offering these services, but the appetite is certainly out there for investment.

Subscribe to our newsletter

Related content

WEBINAR

Upcoming Webinar: How to maximise the use of data standards and identifiers beyond compliance and in the interests of the business

Date: 18 July 2024 Time: 10:00am ET / 3:00pm London / 4:00pm CET Duration: 50 minutes Data standards and identifiers have become common currency in regulatory compliance, bringing with them improved transparency, efficiency and data quality in reporting. They also contribute to automation. But their value does not end here, with data standards and identifiers...

BLOG

BNP Paribas Becomes First EU G-SIB to Join GLEIF Validation Agent Programme

The Global Legal Entity Identifier Foundation (GLEIF) continues to build out the Global LEI System (GLEIS) with the addition of BNP Paribas as a Validation Agent. The addition of BNP Paribas marks the first global systemically important bank (G-SIB) headquartered in the EU to join the Validation Agent programme. Most recently, the GLEIF added Nord...

EVENT

RegTech Summit New York

Now in its 8th year, the RegTech Summit in New York will bring together the regtech ecosystem to explore how the North American capital markets financial industry can leverage technology to drive innovation, cut costs and support regulatory change.

GUIDE

The Data Management Implications of Solvency II

Bombarded by a barrage of incoming regulations, data managers in Europe are looking for the ‘golden copy’ of regulatory requirements: the compliance solution that will give them most bang for the buck in meeting the demands of the rest of the regulations they are faced with. Solvency II may come close as this ‘golden regulation’:...