Derivatives

Overview

eDelta offers a series of derivatives and capital markets services for banks, investment banks, capital markets trading subsidiaries, institutional investors, hedge funds, leasing companies, government agencies, and other entities involved in derivatives trading, end-user hedging, asset swap investing, and arbitrage trading across asset classes e.g. foreign currencies, interest rates, commodities, equities, credit default swaps and indices, and structured instruments. eDelta functions as a consultant or an outsourced independent reviewer, and brings deep experience and understanding of derivatives from a business and operational perspective. 

Services

Counterparty Credit Risk Monitoring and CVA

Monitoring credit exposure arising from derivative transactions entails a complex series of steps and calculations, including valuation of each transaction using daily market rates across multiple asset classes, application of netting sets based on legal entities off-settable  in bankruptcy, ISDA (or other) documentation reviews, as well as monitoring the underlying credit worthiness and approval status of each counterparty. Calculation of Credit Valuation Adjustment (CVA) requires voluminous forecasting of future exposures as well.  eDelta can assist clients in all phases of this process, and understands how each of these functions interacts with the next.

Policies and Procedures

Derivatives policies and procedures require regular review in the emerging regulatory framework, the rollout of continuing Basel regulations, implementation of Dodd-Frank, and the migration of businesses from organization to organization.  eDelta can review policies and procedures to reflect best practices, correct outdated or incorrect references, improve efficiency in processing flow, improve regulatory compliance, and reduce risk in both assuming new transactions ad monitoring existing portfolios.

Valuations

Derivatives valuation can be a complex process with trading books across asset classes e.g. foreign currencies, interest rates, commodities, equities, credit default swaps and indices, and structured instruments.  Furthermore, many derivatives such as exotic  options and credit default index tranches entail counterintuitive model risk and correlation risk.  eDelta can assist in validation of models, consistent application of models, rates and valuation methodologies across different types of derivatives and different markets.

Credit Reserve and Capital Adequacy Calculations

Calculation of credit reserves and capital adequacy often depends on multiple inputs from the credit default swap market, as well as netting collateral and other detailed calculations.  eDelta assists clients across credit risk, market risk and operational risk capital adequacy calculations, in addition to more recent calculations relative to liquidity, leverage and funding.

Documentation 

Documentation of OTC derivatives transactions is primarily based upon standard templates produced by the International Swaps and Derivatives Association, Inc. (ISDA) on a global basis, ans much of the legal infrastructure of derivatives risk management rests upon the enforceability of provisions relating to netting, collateral and clearing.  ISDA Credit Support Documents also provide the foundation of credit extension in many transactions.  eDelta can assist clients in navigating and monitoring the myriad levels of documentation needed for any sort of derivatives portfolio.

Collateral

eDelta can assist clients in reviewing the monitoring of the collateral as to type, valuation, settlement and sufficiency relative to derivatives portfolio risk.  This aspect of derivatives risk management has become significantly more important since the financial crisis when the collapse of complex but highly rated instruments hastened the demise of entire firms, and led regulators and legislators to require substantially more collateral throughout the derivatives markets.

Sales Practices and Consistency

Derivatives sales practices have been at the center of many arbitrations and lawsuits, and eDelta can review sales practices not only for conformity with the best practices and applicable regulations, but also evaluate the monitoring infrastructure for incident reporting, and the consistency of marketing materials with policies and procedures.