benchMark – long dated repo pricing validation tool
Our client, a European investment bank, faced regulatory and internal audit pressure to validate their pricing of illiquid long dated repo transactions
Developing a fast and effective solution
Our client’s risk management function was concerned that the long dated credit repo market suffered from a number of data issues that made validation of mark to market levels challenging:
- lack of standard market curves
- lack of third party data sources
- multiple pricing drivers
Our client had reviewed several proposed vendor solutions, including complex multi-factor model development, that were consistently expensive and with long lead times.
Execution of the benchMARK solution
We used the benchMARK validation engine, to assess the internal consistency of the repo marks by identifying benchmark trades and measuring the divergence of internal marks from these benchmark trades.
benchMARK allowed easy identification of internal marks that diverged significantly from benchmark trades and provided summary statistics of the amount of divergence.
The benchMARK solution leveraged our client’s internal historical trading and pricing time-series to provide comparative pricing metrics.
Users, via an intuitive GUI, could change the criteria of the benchmark trades and the aggregation level of the summary statistics.
Rapid deployment of the benchMARK solution
CPRA’s solution satisfied regulatory and internal audit requirements.
Our blend of market and data experience allowed us to rapidly deliver an effective, cost effective solution.
The data based approach gave risk managers the information to appropriately challenge traders’ internal marks.