JPX recently completed the roll-out of a new risk solution across all its asset classes - OTC and exchange-traded - allowing the Group’s clearinghouse Japan Securities Clearing Corporation (JSCC) to improve efficiency and monitor risk in real time. With the new solution, the clearinghouse has freed up time from previously labor-intensive processes of collecting data and performing calculations, to the task of analyzing the material. Increased vigilance is required of risk teams today, and achieving the best day-to-day procedures is key.
Faced with increased global competition, JPX, one of the world’s largest financial marketplaces, initiated a technology overhaul, called the Grand Design Project. The aim was to boost its exchange-traded derivatives offering, and advance efficiency in the Group’s risk monitoring capabilities. JPX decided to install two new solutions from Cinnober: a clearing system for the derivatives market, and a risk system providing a single entry point for risk management, across all its markets.
The Group’s subsidiary, the Japan Securities Clearing Corporation (JSCC), offers clearing of JPX’s five asset classes: equities, exchange-traded derivatives (ETD), Japanese government bonds (JGB), interest rate swaps (IRS) and credit default swaps (CDS).
In the aftermath of the financial crisis in 2008, clearinghouses operate in an increasingly complex environment, partly owing to new regulatory requirements. With the new risk solution in place, JPX can efficiently monitor risk in real time across all its asset classes, both exchange-traded and OTC. The risk solution first went live on its exchange-traded derivatives market, and three months later the rollout was completed to cover the rest of JPX’s markets.
JPX’s new risk solution is used for model validation and exposure monitoring across the Group’s separate clearing silos, covering initial margin monitoring, default fund calculations, sensitivity calculations, credit-and liquidity stress testing and backtesting.
With one point of entry for risk management across all cleared asset classes, operational efficiency has increased considerably, as a combination of systems and spreadsheets had been used for these tasks in the past.
Interface developed in collaboration with end users
With a powerful web-based Graphical User Interface (GUI), members of the JPX risk team now monitor risk and perform calculations in real time. When signing in, a customized view of the dashboard is displayed, with navigation widgets highlighting grouped data according to JPX’s choice. Performed calculation results are displayed on different levels in a risk hierarchy (clearing member, portfolio, asset class or entire clearinghouse). Risk managers, analysts, administrators and other users of the system can easily filter, select and export data as well as generate illustrative graphs to keep decision makers informed.
Results are traceable through the GUI back to portfolio level, through several steps, moving away from black box calculations. Risk managers are provided with the details underlying calculations and can explain the rationale behind decisions, such as an increase or decrease in a clearing member’s default fund contribution, facilitating better communication with members.
Built uniquely for clearinghouses
JPX uses Cinnober’s TRADExpress™ CCP Risk, a risk management solution that is tailored specifically for the needs of central clearing counterparties (CCP’s), facilitating highly efficient operations and easy compliance with regulatory requirements. The risk team is now only clicks away from calculations such as clearing fund sizing, credit stress testing, what-if-calculations and more.
The risk solution is in full operation and Ruyusuke Yokoyama, Senior Executive Officer and CIO at JPX commented on performance and functionality.
“We now experience a substantial gain in efficiency in our day-to-day operations. With one consolidated risk solution across markets we can perform complex risk calculations rapidly, and our risk team can easily generate the calculations and reports we need for decision making. Time is always a critical factor." - Ruyusuke Yokoyama, Senior Executive Officer and CIO, JPX
Scalable plug-in architecture
JPX’s new risk solution is based on the TRADExpress Platform that has a proven track record in high-volume environments, providing some of the world’s most demanding marketplaces with speed and resilience.
The underlying architecture uses plug-ins to deploy new financial products and risk algorithms. Plug-ins enables JPX to add functionality without performing releases of the system. This facilitates responsiveness to client demands as well as speed to market for upcoming initiatives. In other words, an assurance that both current and future needs will be supported and work perfectly with the overall solution.