Wallstreet Suite The comprehensive reserve, debt, cash and asset management solution for central banks and

government agencies

www.wallstreetsystems.com

FACT SHEET: Wallstreet Suite

RISK MANAGEMENT

BUsINEss CHALLENGEs
The liquidity and debt crisis have made clear the importance of effectively and efficiently managing risk. The compliance costs of regulations such as Basel III, the Dodd-Frank Act and European Market Infrastructure Regulation (EMIR) have a major impact and risk managers are only too aware that the losses arising from operational risk can match or even dwarf those from market and credit risk. Innovation in structured products and derivatives, and the booming credit and derivatives market have introduced new challenges on credit and market risk management systems. A lack of integration and automated processing in these systems can cause a significant reduction in the control a company has over its global risk exposure across the front, middle and back office. Finding a balance is vital. The lack of accurate real time future liquidity data also poses a major challenge for financial institutions, forcing them into unnecessary short-term financing at unattractive rates or causing opportunity cost resulting from missing investment opportunities. Wallstreet Suite delivers comprehensive risk management support. The application is based on a single system covering all asset classes with updates in real-time. Wallstreet Suite fully meets requirements for global market, counterparty, credit, liquidity, and operational risk controls and compliancy of treasury and investment policies.

RISK CLASSIFICATION
Business risk: Volume risk Margin risk

Market risk: Foreign exchange risk Interest rate risk Commodity risk Equity risk

Liquidity risk: Funding risk Price risk

FINANCIAL RISK
Edition 1 PAGE 1 OF 8

Credit risk: Counterparty Sovereign Pre-settlement

Operational risk: Criminal activities Litigation External events Processing and system failures

KEY FEAtUrEs
MARKET RISK
Wallstreet Suite enables monitoring of positions and transactions in real-time using a flexible portfolio structure. The user can define a portfolio structure and analyze positions, monitoring across sectors, currencies, tenors, geographies, ratings, time buckets and so on. Both the absolute and relative exposure of the positions is provided in user-defined groupings, and derivatives exposure both in terms of marked-to-market valuation and exposure in the underlying securities can be measured. The user can thus monitor the derivatives leverage. A unique real-time monitoring tool includes comprehensive analytics and coverage for risk decomposition, scenario analysis and what-if analysis. It also delivers customized real-time reporting across portfolios and product lines including derivatives and structured products. More than 300 key figures can be calculated in real-time, for example FX, interest rate and equity exposures, sensitivities as well as option Greeks, sets of duration figures and real-time value at risk. Key figures are compared between portfolios, positions and benchmarks. Within the Wallstreet Suite monitoring tool, different valuation methods can be used per instrument, showing both the marked-to-market and theoretical valuation using configurable yield curves in the same screen. For each instrument it is possible to assign a configurable spread curve for use in the valuation. For the pricing of advanced derivatives and structured products such as digital and rainbow structures, range accruals, and multi-callable structures, Wallstreet Suite uses external valuation libraries. When pricing deals with these features, users can take advantage of wide range of valuation models such as Hull and White one, two factors, three factors, Spot Skew, Black-Karasinsky, and Black-Derman-Toy, Libor market models (Brace Gatarek Musiela Model) and time dependent cross currency models. Interest rate sensitivity can also be computed from these valuation models. On top of internally calculated figures it is possible to import external figures allowing the user to compare them or complement them. Users can import key figures such as present value or duration calculated from external systems or in-house models. The imported figures are then used in Wallstreet Suite for Valuation and Risk Analysis.

PAGE 2 OF 8 Edition 1

Duration Portfolio managers are often mandated to monitor the deviation of duration between benchmark and investment portfolios by maturity buckets. Deviations from the benchmark duration are allowed, and thus a corridor versus the benchmark is typically defined. Deviations can be defined in absolute or relative terms. To achieve this, Wallstreet Suite calculates Effective Duration and Spread Duration by cashflow. They are respectively defined as relative change of the present value of a position with respect to a change to the interest rate and z-spread. The z-spread being defined as the flat spread over the risk free curve that makes the present value (out of discounting) match the mark-to-market value off the market price. The cashflow level values are then aggregated to derive the duration contribution of each transaction, instrument and maturity bucket to the overall portfolio duration. A specific approach is necessary for off-balance instruments (as well as for on-balance instruments during the settlement period), where the present value is close to zero and therefore not a good measure of risk taken. The present value is in this case substituted by an estimate of the size of the underlying position in the definition of Effective Duration, creating a new measure named Modified Duration. The Wallstreet Suite treasury monitor functionality calculates and displays the drill-down of duration figures in absolute and relative terms, while the limit monitor functionality controls the deviation of the duration with regards to the benchmark. Value-at-Risk Wallstreet Suite provides a comprehensive support for various Value-at-Risk Models, including Monte Carlo, Historical Simulation and Parametric VaR. The Wallstreet Suite treasury monitor functionality allows monitoring of the parametric VaR of portfolios in real-time and the drill down of the VaR of positions across currencies and the market. The user can define the VaR confidence level and horizon, and analyze VaR

Debt Positions and IR Simulation

including incremental VaR, absolute VaR and relative VaR versus a scaled benchmark. In addition, daily and periodic risk reports are available where Monte Carlo VaR and expected shortfall are displayed. These VaR figures are calculated by a batch process and the drill down is configurable so that the user can define the levels of the calculation, for example per currency, instrument group, counterparty, the confidence level as well as the number of simulations. In order to fulfill the Basel requirement of at least 99% accuracy of a banks model, Wallstreet Suite provides a historical test (back testing) of the accuracy of the VaR model by comparing the realized trading results with models generated value at risk. In this context, it is measured via number of VaR exceptions, for example days when trading losses exceed the daily VaR estimate with a given horizon and confidence level. To maintain a consistency of VaR figures Wallstreet Suite allows the calculation through a batch process of variance and covariance of underlying risk factors as well as the Beta of equity with respect to a given index derived from historical quotes of risk factors. Additionally, users can load volatilities and correlations from external market sources. Additional risk management functionalities such as stress testing and predictive scenario generation are also provided through standard interfaces to other commonly used risk software.

Edition 1 PAGE 3 OF 8

Compliance Limit Monitoring Dashboard

Operations Dashboards

CREDIT RISK
Credit risk is now a major focus, whether pre-settlement or settlement related. Settlement risk can be mitigated through management of credit exposures. Within Wallstreet Suite the user can choose specific formulae per asset classes (typically based on a nominal amount), market value and an add-on relating to risk sensitivities with a dependency on the credit rating, the currency or the time to maturity. The system provides a powerful realtime limit management engine that facilitates control of the current limit exposure against a set of limits in terms of counterparty, country, or issuer. The exposure can be individual or aggregated in different ways, such as a group of counterparties, currencies, and markets. Mathematical formulas can be used to define both the exposure calculation as well as the limit calculation and the limits can be expressed either as a percentage or as an absolute amount.

The limit management engine comes with additional features such as:
Simulations

to allow users to examine the effects of potential deals before they are executed or even stored in the system. Functionality to enable traders to perform a pre-execution limit check in real-time to ensure that the trade they are about to execute will not violate any limits. The workflow in Wallstreet Suite can be configured to ensure that all new deals that violate any limits are sent into an exception processing queue. Messages, updates and warnings of potential limit violations, sent in real-time, plus storage of all instances of limit violations for retrieval via pre-defined reports. The ability for users to create what-if scenarios to analyze the impact of interest rate shifts, price shifts, volatility shifts and creation of multi-factor simulations to aid in the decision-making process. The definition of any number of parallel or sequential limits in a flexible manner plus continuous monitoring in real-time. In particular, using the flexible rules in Wallstreet Suite it is possible to parameterize different types of limits:
Counterparty Issuer

exposure limit exposure limit Currency distribution limit Tactical investment limit in relative VAR terms Counterparty concentration limit Within Wallstreet Suite, credit derivatives such as single name Credit Default Swaps or index linked Credit Default Swaps can be used to hedge credit risk.
PAGE 4 OF 8 Edition 1

Liquidity risk is on the top of the agenda for every Central Banker and Debt Manager. With Wallstreet Suite you can monitor liquidity projection in real-time.

Collateralization is another risk mitigating strategy whether for individual trades e.g. repos or for portfolios. In Wallstreet Suite, the user can capture collateral agreements, apply haircuts to eligible collateral pieces and follow the collateral requirements triggering collateral movements. OTC derivatives clearing requirements (in the process of being finalized in the US with the introduction of the Dodd-Frank Act and in Europe with the EMIR) will also contribute to the reduction of credit risk on these particular assets. Wallstreet Suite functionality can be leveraged to support these new regulations combining:
sophisticated

LIQUIDITY RISK
Liquidity risk is on the top of the agenda for every Central Banker and Debt Manager. For investors, there is a liquidity risk when it becomes increasingly costly and difficult to exit a position in a market that is lacking depth. For borrowers, the liquidity risk can lead to a default since short term debt servicing requirements cannot be met through additional cash borrowing or liquidation of possible assets. Liquidity risk is mitigated through implementation of institutional investment and borrowing guidelines and policies. The scope of these institutional polices is to determine the appropriate level of liquidity for each organization. Wallstreet Suite makes it possible to monitor liquidity projection in real-time. The liquidity risk management framework is implemented by using limits that determine for each currency the minimum levels of liquidity invested in cash, securities and other marketable instruments, establishing liquidity tranches within the liquidity portfolio and liquidity benchmarks. Specific liquidity limits include currency diversification, minimum issued amounts to ensure market depth and maximum held portions, asset classes and maturity concentration limits, plus a minimum percentage of specific assets that can be converted into cash within certain time period, such as the target liquidity ratio. Mechanisms such as real-time monitoring of bid/ask spreads, CDS spreads and notifications of liquidity limit breaches can be further used to support the liquidity framework in Wallstreet Suite.

and open trade workflow for handling trade clearing eligibility status and data enrichment. user definable trade, legal entity, instrument properties and parameters for recording executing and clearing brokers, external trade references, and unique identifiers. built-in reporting capabilities (using report generator functionality or directly via the Open Reporting Database (ORD) within Wallstreet Suite. Settlement risk can be managed using the limit framework where settlement risk amounts are calculated for every future day in consideration of netting agreements and comparison to a maximum either per currency or cross currency. Using Wallstreet Suite makes it possible to participate in CLS to dramatically reduce settlement risk on FX positions.

Edition 1 PAGE 5 OF 8

OPERATIONAL RISK
Wallstreet Suite is a fully integrated solution based on a single database enabling implementation of operational controls and seamless Straight-Through-Processing workflows that minimize manual interventions and datainterchange between multiple systems or maintenance of critical data in spreadsheets or unsecured databases. This in turn minimizes the likelihood of error, giving tight front-to-back operational control. Wallstreet Suite supports flexible definition of access rights to ensure the segregation of duties. Depending upon the responsibilities of individual users, the administrator can grant very specific object level permissions that minimize the possibility of unauthorized access, data manipulation or fraud. The system allows enforcement of a 4-Eyes principle that prevents users from approving their own actions, allowing for the separation of maker and checker roles. Since the workflows are designed to give approval/checker rights to an authorized group (that cannot be directed to a specific approver) and the audit trail is maintained at the most granular level, the system is designed to prevent collaborative fraud. Wallstreet Suite manages any financial instrument regardless of market, asset or instrument class. An infinite number of new instruments can be created by combining different elements such as cash flow, schedules and legs, events and payoff expressions, fees, valuation and other actions that can occur during the life of the instrument. All financials are entered and maintained within the application, and follow a consistent set of controls to mitigate operational risk. Where trades do not fit the standard trading and processing pattern, a warning can be set to instantly alert a risk manager. Alternatively the transaction workflow can be routed to a back office analyst for investigation, prior to any back office processing such as payment. The user can investigate the costs and income, drilling down into positions in a single click to examine the trades in more detail. In addition to real-time notification of limit breaches, unusual trade entry details and security breaches, Wallstreet Suite also includes periodic activity log reports including time stamps and before & after images of all actions performed within the system. These security audit log report formats can be customized by the end user, and automatically generate and deliver in a variety formats using the Wallstreet Suite integrated activity manager functionality.

PAGE 6 OF 8 Edition 1

Forecast CCY Exposures and Hedging Ratio

Operations Dashboard

MARKET DATA MANAGEMENT

Wallstreet Suite contains a set of configuration tools and market data monitoring tools to provide transparency in market and credit risk calculations. Wallstreet Suites market data management functionality allows authorized users to monitor Market Rates in real-time:
Interest

DASHBOARD REPORTING UTILITY

All risk, position and limit figures as well as liquidity are available in specialized monitors and reports throughout Wallstreet Suite. The in-built dashboard reporting utility allows users to view all the information provided by the monitors in user-friendly and fully configurable dashboards. The dashboards can display multiple information sources including related graphics in one single view. They can be accessed via a web-browser, including via mobile devices such as Blackberry and iPhone.

Rates (Money Market Rates, Swap Rates, Interest Rate Futures, Deposit Rates, etc.) FX rates (Spot and Forward Points, FX Volatility quotes) Interest Rate Volatilities (Cap/Caplet Volatilities, Swaption Volatilities, Interest Rate Volatilities, etc.) Market Quoted Prices for Instruments etc. Import of instruments by CUSIP In parallel to streaming quotes, it is possible to store other quotes for a given market rate, for example end of day quotes for risk reporting or P&L calculations, or monthly quotes for accounting.

Edition 1 PAGE 7 OF 8

BUsINEss CHALLENGE
MINImIZE opErAtIoNAL rIsk

WALLstrEEt SUItE SoLUtIoN

4 4

Fully integrated solution, single database with the ability to implement operational controls and create workflow processes. Tight frontto-back control of all processes to minimize operational risks.

CrEdIt ANd mArkEt rIsk mANAGEmENt

4 4

Risk Managers and Compliance Officers can examine the risk profile for all asset classes though streamlined reports and real time monitors. It is possible to analyze the individual risk factors through drill-down and dynamic modeling.

MINImIZE LIqUIdItY rIsk

4 4

An accurate view of short, medium and longterm liquidity facilitates decisions on which capital market transactions are needed to obtain an optimal yield. The liquidity of your organization is secured at all times.

Wall Street Systems Delaware, Inc. All rights reserved.

CONTACT US North America HQ +1 212 809 7200 info@wallstreetsystems.com Europe HQ +44 (0) 20 3170 3000 Asia HQ +65 6 232 2358

www.wallstreetsystems.com/products/wallstreet-suite-central-banks

Wall Street Systems Empowering Treasury, Trading and Settlement

Edition 1 PAGE 8 OF 8