State Street’s Entity Exposure Monitor Service went live this week, giving asset owners and managers a view of how much financial exposure they have to each legal entity they do business with or have in their portfolios. As well as being available immediately, the service plays into forthcoming US and European regulation on legal entity identifiers (LEI), with State Street saying it will be able to morph its identifiers into those required by regulators once regulation is finalised.
State Street will deliver the Entity Exposure Monitor Service from its proprietary online client information delivery system my.statestreet.com, making existing State Street users early customer targets. The service includes dashboards that investors can use to drill down into information about issuer and counterparty risk, limit settings and alerts. It also provides analytics for solutions such as exposure diversification and client universe comparisons.
The company maintains that while it, and its competitors, have offered elements of the Entity Exposure Monitor Service as, perhaps, part of a hedge fund service or risk offering, the new service is different in that it has been built solely for the purpose of monitoring exposure and can be used across all asset classes.
According to Patrick Centanni, executive vice president and head of global product management at State Street, “The notion of exposure emerged after the collapse of Lehman. We talked to our clients and framed a conceptual product that we have refined over the past two years with clients and is now ready for general release. Clients told us they wanted to know very quickly where their exposures are across all types of activity. Our goal was broader than, say, a solution for counterparty exposure in derivatives. Instead, we wanted to combine monitoring asset classes with the ability to look at activities such as repo and securities lending.”
State Street piloted the service with a handful of pension funds and asset managers, and expects it to appeal to all asset owners and managers with some oversight of risk. “The service is designed so that a variety of people in an organisation can use it to support their business perspective. It could be used by traders or risk managers, really anyone looking for a smart tool to gauge exposure,” says Centanni. “One key benefit of the service is that it meets customer needs to know their exposure to specific entities and their total exposure. It provides better radar to understand the interconnects between exposures.”
As a bank that must meet regulations and a financial services provider, State Street developed the entity exposure service both for its own use and for external customers. It already held and used entity data, but enhanced and turned around some of its infrastructure to be client facing, extended the use of entity data to customers for the first time and enriched the with customer data to provide the monitoring service.
Peter Jacaruso, senior vice president of new product development, global product management, at State Street, says the biggest challenge in building the service was defining entities, constructing data around them and rolling up data from entities to the ultimate parent. On the subject of LEI regulation, he adds: “We will all have to comply with the regulations so we are tracking their development and have designed our service to accommodate standard LEIs when they are agreed.”
Centanni expects the Entity Exposure Monitor Service to be a big hit with existing customers, but also hopes it will attract new customers with a desire to measure exposures. There is a cost attached to the service, but he says: “In the general scheme of things the service is good value as the cost is tailored to each customer’s particular requirements.”