The rise in importance of legal agreement data in respect of master trading agreements has very much arisen post Financial crisis from the rapid realisation that factors such as counterparty risk, funding risk (e.g. of collateral) and capital costs were hardly considered when pricing trades – with the primary focus of trading desks to accurately price for the market risk of the transaction).
Valuation adjustments (CVA, DVA, FVA, MVA, KVA (the XVAs), have been subject to constant refinement as regulation has evolved and institutions have understood more about the complexity of derivative valuations. Legal data management is key to the evolution of that understanding and the proper use of contract data in order to make those valuations more accurately and to price more efficiently. Such management includes, use of trade information to legal agreement linkage mapping, trade confirmation management and recording and tracking of key contract data terms.
Many of D2LT’s have benefitted from our ability to unlock the business value from this key legal agreement data. With our expertise we have helped our Tier 1 investment banking clients with key bank wide projects to design and implement an automated data extraction tool to enable it to extract and store key data from master trading agreements. This data is then made available downstream to key consumers including CVA desks to access far more accurate and granular detail in respect of key provisions and collateral types and to price risk far more accurately.