Systematic hedge fund Aspect Capital is widening its use of OpenGamma’s derivatives analytics to aid in the calculation of margin requirements as the firm expands into new markets. Aspect recently indicated it is starting operations in China, requiring it to calculate margin for trading on that country’s exchanges.
OpenGamma’s analytics cover exchange and broker margin methodologies, allowing clients to track risk exposure and help maintain fund liquidity. According to OpenGamma CEO Peter Rippon, Aspect Capital’s use of OpenGamma’s derivatives margin calculation engine allows it to optimize the amount of capital it has available to support its trading activities and ensures it is well equipped to launch new strategies or enter new markets. “Our expanded partnership with Aspect Capital will broaden the delivery of operational efficiencies for their derivatives trading by tracking the consumption of margin across a wide range of markets and multiple prime brokers,” Rippon says. This requirement has become more acute since the 2008 Credit Crisis, as exchanges and brokers have made their rules around margins more stringent. “This evolving derivatives landscape has increased the demand for analytics that allow financial institutions to proactively manage margin requirements,” Rippon says.
For firms like Aspect Capital, an OpenGamma client since 2018, and trading new markets can come with hidden challenges: futures and options contracts trade on local exchanges, and each exchange has its own specific approach for calculating derivatives margin. With some firms dealing with 30 or more CCPs – whose risk management teams set margin levels for individual financial products – the margin calculation requirement can be complex and onerous.
This requirement has become more acute since the 2008 Credit Crisis, as exchanges and brokers have made their rules around margins more stringent. “This evolving derivatives landscape has increased the demand for analytics that allow financial institutions to proactively manage margin requirements,” Rippon says.
To help control risk and manage liquidity, investment managers need to predict the derivatives margin requirements from both current and potential new strategies. This requires access to margin analytics that cover the specific methodologies used in each local market. Use of a third-party platform like OpenGamma – which is delivered via SaaS – reduces the time and cost of preparing to trade new markets.
Says Jake Thornton, Head of Market Risk at Aspect Capital, “As the regulatory landscape for margin evolves and we continue to diversify our product range, OpenGamma’s intuitive platform and expertise in margin replication provide a valuable tool to help optimize cash usage in a high cost, low interest rate environment.” He says the firm is now working with OpenGamma to “further integrate their margin replication into the Aspect workflow.”