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Artificial Intelligence in Margin Agreements and Disputes

By March 23, 2020 No Comments

With an increasing importance placed on data science in the field of decision making, many large technology companies are moving towards automating and training their machines to carry out human tasks. It has become imperative over the years to continue developing new models and frameworks to satisfy the growing needs of the asset management industry.

After the 2008 financial crisis, the industry experienced a drastic change in regulatory filing requirements, collateral postings, wire transfers and more, which has led to the heightened implementation of artificial intelligence within collateral management processes to induce both operational and analytical efficiencies around the following factors:

  • Mitigation of credit risk: Protects the firm in case the counterparty defaults where the collateral held is liquidated to bridge the losses.
  • Access to markets and counterparties: Entities that are not usually readily available such as illiquid securities, markets and deals.
  • Authentication of the portfolios: This often helps to shed light on the differences that exist between a fund’s internal accounting system and the books of the counterparties.

Understanding the need to do away with redundancy and time-consuming tasks, we have implemented artificial intelligence and machine learning capabilities throughout our platforms. IVP Treasury’s collateral management module possesses an AI-based e-mail feature that allows for communication between various brokers and counterparties. The module also keeps track of all the margin calls on a given day and allows the funds to pay and receive margin calls. All of our clients have multibillion-dollar exposures, making it redundant and time-consuming to check the underlying data before sending out a margin call notice to the counterparties.

IVP Treasury also automatically communicates with various counterparties everyday to resolve margin conflicts and buckets the responses into agreements and disputes. We have a feature that automates wire transfers that result from the agreed margin calls. Our clients have exposure to numerous counterparties, and we make sure that all responses are fed to the system to train and evolve it, which creates a completely automated, state-of-the-art margin management feature as part of the larger collateral management suite.

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