Deutsche Bank - Paragon Induction Pack Risk Management –Traded Products Document Owned By – DB Functional Team

Introduction
Purpose of the document
• To provide a high level understanding of the functionality and features available in the Paragon – Traded Products Module DB Account – TCS Team New Inductees in the DB Account

Intended Audience • •

Contents • • • Primary Navigational Flow of the functionality Key terms Details of UI screens – Purpose of the screen and important workflows

Prerequisites • Individual should have read the Paragon – Initial Induction Document

17 June 2012

Traded Products in Paragon
 The Traded Products module deals with all the products in which DB is doing business via Margin and Derivatives trading activities. In DB‟s term these are covered under the Global Markets area  Products under Traded Product include • FX (Spot and Forward) , Futures and Option • Swaps, Bonds, Equities, Options, Repo, Metals, Commodities • Money Market Derivatives, Money Market Cash Instruments (Call / Term Deals), etc. Limits can be defined and exposures can be monitored at a „portfolio‟ level for various derivatives and products for DB customers. Credit Facility is created as per the legal agreement signed between the customer and bank for the specific trading clauses Netting Agreements can be captured which are used to net exposures across counterparty‟s branches that are participating in the agreement. To enable effective utilization of Limits, „Clustered Portfolios‟ are being supported. This helps to assign a single umbrella limit to cover transactions on different products and across different legal agreements / counterparties.

  

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Traded Products in Paragon
Features supported are:  Maintenance of Facility (ISDA, OSLA, Undoc, etc.), participating branches (external and internal) and netting agreements.  Capture Null, Not Null and Grey Limits  Capture Tenor Wise Limits and monitoring Exposures for Portfolios (Single and Clustered)  Clustered Portfolios  Monitor Current Credit Exposure [CCE] provided via Risk Engines  Monitor Potential Future Exposure [PFE] provided via Risk Engines  Capture of Probability of Default (PD) and Loss Given Default (LGD) details at Portfolio/Limit level  Maintaining of Approved Limits (Live) and Pending Approval (Pending) Limits.  Display of Trade Details

Note
 Grey Limits are set up to manage exposure to certain extra-ordinary deals, which would otherwise breach the actual limit in terms of tenor. Grey Limits are set for tenor beyond the maximum tenor.

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Key Terms
Facility Traded Product facility is derived from the legal agreement between DB and the external customers and is as per the agreed standard trading clauses (ISDA , REPO etc) Limits are not captured at facility level .Business Area is added to a facility which formas a Portfolio .Limit is assigned to this portfolio Participating Branches and Netting sets are captured at facility level Participating Branches Set of branches for both the external and internal counterparties which can participate in the trading under one facility. It is captured at “facility” level.

Participating Products
For each facility type (i.e. legal agreement type) there is a fixed set of products for which trading activities can be performed .While setting participating branches all or some of such products can be selected based on what is mentioned in the legal agreement Business Area In real market trading activities happens on many products. From credit risk management perspective these products have been classified in multiple groups and each of these groups is known as Business Area . Credit Officers monitor the limit at Business area level Portfolio A facility can be created for trading in multiple business areas. Limit can be assigned uniquely for one business area .Combination of facility and a business area is known as Portfolio .In traded product module limit is assigned to a portfolio
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Key Terms
Netting Set  At Legal agreement level it is agreed that for certain participating branches and products exposure netting can be done .That is the amount overdue on DB or customer and vice versa can be adjusted .Sets of such branches and products is known as Netting set .This is primarily done for correct exposure calculation (credit netting) and for satisfying regulatory economic capital requirements (regulatory netting) Limit  Maximum amount that borrower can borrow under a facility is called Limit. It is assigned to a single tile or a clustered portfolio. Availability  The difference between a limit and the aggregate of current borrowings outstanding . Utilization (Exposure)  This is the amount which has been utilized by the borrower out of the limit granted. Example TCS has been granted a Limit of 100 and out of that 60 has been utilized so availability would be 40 (Limit – Utilization) Limit = 100 Utilization = 60 Availability = 40
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Traded Products Module
Traded Products module is accessed through the Paragon Main Page by clicking on the TP node

The navigation to various screens in the TP module can be done via the menu options. Further navigation can also be done from individual screens

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Counterparty List

 Counterparty List is used for searching the customer record based on the available parameters .  User fills in the search type and then presses Go button, list of counterparties is displayed based on the search type

The Product Group overview Screen can be opened from here. For this user mark the desired counterparty , right click and select PGO.

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Primary Navigation
Traded Products( View List)

Counter Party List Delete Zero Limits Product Group Overview Netting Set List Create Facility Create Masters Master View Masters Master List Business Area Overview Portfolio List Create Clustered Portfolio View Facility Overview Modify Authorize Delete Facility List Modify Facility Delete Facility View Facility CSA Details Add Business Area Portfolio List Netting Set List CSA Id Legal Status Annotation History Participating Branches

Facility

Portfolio List Modify/ Del/View Create Netting

Master Masters Create

Business Area Add/ View/Delete

CSA Id search

Portfolio List

Create Clustered Portfolio Modify Single Tiled Portfo View Portfolio Create Limit View Limit Set PFE multiplier View Trade Details Business Owner CSA ID Details Portfolio Ratings

View Netting List

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i

Facility

ii

Participating Branches & Netting Set

iii

Portfolio

iv

Product Group Overview

v

Miscellaneous

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Create Facility
When the legal agreement between DB and the external customers is through, trader requests the credit officers to sanction the credit limits so that the transactions can be initiated .Details like Product , Requested Limit amount are provided by the trader For Margin products credit officers have to make sure that a legal contract is in place before approving a limit . Based on the contract a facility is created and participating branches and netting sets are defined Appropriate business area is added to a facility which create a portfolio. Limit is assigned to this portfolio Facility is created by using the Traded Product PGO screen Facility becomes active only when the credit application approval is done for the customer hierarchy

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Create Facility
To create the facility the compulsory fields marked in yellow has to selected from the QBE‟s and saved.

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Facility - Status Workflow
Create On Hold Send Back Pending Auth Reject

Authorise via Credit Application

Pending Closure

Active

Deleted

Pending Mod. Auth

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Facility List
Facility List is used for searching the facility record based on the available parameters . User fills in the search type and then presses Go button, list of facilities is displayed based on the search type Facility List further provides navigation to „Facility Details‟ screen which is used for facility data maintenance (modification, deletion etc)

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Facility Details – Key Elements

This panel provide the customer details, facility id, type & status .DB Entity indicates the DB internal subsidiary which will facilitate transactions.

This panel provides the list of products which are available under a particular facility type.

This panel provide the netting set id , status and the description

This panel provide the internal counterparty which participate in the facility

This panel provide the External counterparty which participate in the facility
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Modify Facility
In order to maximize profits and minimize risks , it is regularly required to update the earlier approved limits .Based on the business scenario , limits may be increased , decreased or completely eradicated for the customers
All such updates are done via „Facility Details‟ screen and are approved after credit application is released

Covered under PGO
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Screens for Other Attributes

Legal Status This screen provides the details of legal status of the facility

Annotation/ History It is possible that while creating or modifying a facility , user may like to enter some comments for future reference .This screen is used for that purpose . Annotation history contains the list of past comments entered in Paragon

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Add Business Area
 A Business Area identifies a product/product group or trading desk within Global Markets that can trade under the legal agreement (facility).  Once a business area is attached to a facility an active null single tile portfolio is created for the same .Limits can then be assigned to this portfolio which will require credit approval

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i

Facility

ii

Participating Branches & Netting Set

iii

Portfolio

iv

Product Group Overview

v

Miscellaneous

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Participating branches
 A crucial element of a legal document is the set of contract partners, usually two legal persons.  External legal entity, i.e. the counterparty, is usually referred to in PARAGON as the facility owner.  Internal legal entity, i.e. the contract partner on DB side  This defines the two legal contract partners of a facility according to the corresponding legal document. This is set at facility level  In addition, the user has to define the set of participating branches. These are those branches of the counterparty and DB internal counterparty that are covered by the agreement Notes:  Participating branches play a crucial role in trade allocation by the risk engines. Only if both sides of a trade are defined to be participating in a facility, this facility is a candidate for covering this trade else the trade is treated as a exception

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Key Terms
• Objective – The objective of Netting is to downsize the agreements between the internal and external counterparty to a single claim in case of termination of events, bankruptcy of counterparties, etc. • In paragon we deal with two types of netting - Credit line Netting - Regulatory Netting • Netting Agreements are captured and are used to net exposures across counterparty‟s branches that are participating in the agreement. • Benefits – Reduction of Settlement Risk – Reduction of Credit Risk – Reduction of Liquidity Risk

Netting

Netting Set

• Set of DB (internal) and counterparty (external) entities which allow for netting according to the legal documentation.  Netting set is captured at “facility” level  Paragon allows multiple Netting Set.

 For more details on Netting please refer the Paragon Legal Module Document.
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Add Product & Participating branches

„Add product & Participating Branches‟ screen is opened via „Modify Facility Details‟ screen as shown above
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Add Product & Participating branches

This contain the products which is available for participations for trading under a facility

Participating products are moved to this panel from the available product screen

This contain the Counterparty name , DB Entity , Facility id & type

This contain the set of External CP which can participate in the trading under a facility.

This contain the set of Ranked internal CP which can participate in the trading under a facility.

This contain the set of Unranked Internal CP which can participate in the trading under a facility.
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Netting Set – Status workflow
CP List

PGO

Facility List

Facility

View Netting Set List

Reject

Create Netting (PndgAuth)
Clicking Authorize button will result in error “ User who has entered or modified the record cannot authorize it”

Modify

Authorize (Active)

This happens because Netting Set works on 4 Eye principle Login as different user and on pressing the authorize button, it will be authorized successfully

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Create Netting Set
 To create Netting Set first the counterparty has to be selected. For this user fills in the search type and then presses Go button, list of counterparties is displayed based on the search type  From the list of counterparties , select a counterparty right click and select „PGO‟ screen. From the facility list screen ,select the relevant facility and then click the Create Netting Set option.

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Create Netting Set screen details
 Netting Sets are defined for the set of participating branches of the facility .Hence Facility participating branch data is a super set for Netting set

When from the „Product Type QBE‟ a product is select and the list of External Counterparties gets displayed in this window.

Simultaneously the list of Internal counterparties eligible for Netting Set gets displayed in this screen

After marking the flag both in external & Internal CP Insert button is pressed and the data from both the screen moves in to Netting Set screen post which it is saved & closed .
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Create Netting Set screen details

After pressing the insert button the selected counterparties moved to the Netting Set screen ,the status at this time is Pndgauth .
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Netting Set - Authorization

To change the status from PndgAuth to Active , from the Netting Set list authorization has to be done from a user other than the user who has entered the record.
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Netting Set - Authorization

Error message got reflected, as „User who has entered or modified the record cannot authorize it‟ since the same user who created the Netting Set also tried to authorize the netting set.
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Netting Set List- Modify, Delete

Netting Set can be modified or deleted from the Netting Set List.
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i

Facility

ii

Participating Branches & Netting Set

iii

Portfolio

iv

Product Group Overview

v

Miscellaneous

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Key Terms
Portfolio  A portfolio is the place where a limit is defined for a given Counterparty/Business Area or a combination of such (see “Clustering” definition). Collateralised Portfolio  Portfolio classified as collateralised by a Credit Officer.  Paragon will only allow for a portfolio to be marked as collateralized in the case where the corresponding “facility” is also collateralized. Facilities are marked as collateralized by Credit Operations in the case where GMM (Global Margin Management) affirms such state and the corresponding CSA Id is provided. Single Tile Portfolio  Comprises a single combination of Facility, Business Area and Counterparty. Clustered Portfolio  Comprises two or more Single Tile Portfolios grouped together into a bigger portfolio following certain rules. Portfolio Name  If clustered, a portfolio bears a name according to the following name convention: Business Area/Facility Type/DB Unit/Suffix. The first 3 name components are system generated whereas the 4th is assigned by the user.

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Portfolio List -1
Portfolio list can be opened through PGO screen . Further navigation can also be done through individual screens

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Portfolio List -2
 Navigation to Create Clustered Portfolio is done through PGO screen  From the CP hierarchy, Select group or the counterparty option, right click and select Create Clustered Portfolio.

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Modify/View Single Tiled Portfolio
Both single tile portfolio and clustered portfolio is modified via Portfolio list screen. For this select the single tile portfolio which has to be modified, right click and hit the modify option. Make the necessary change/s and save the same.

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Create Clustered Portfolio
 Navigate to this screen using „Create Clustered Portfolio „ option on Potfolio List  Select a counterparty from the CP hierarchy , right click and press “View Single Tile Portfolio”.  On click of the said button the list of all the single tile portfolio will be displayed.

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Create Clustered Portfolio

On clicking this check boxes all the Single Tile Portfolio gets displayed

On clicking this check box, the clustered portfolio gets Collateralized

This panel shows the counterp arty hierarchy

Portfolios which has to clustered are moved from Single tile to this panel via move button

On this panel the single tile portfolio gets displayed depending whether CP or Group is selected

This button is used to move the Single tile portfolios to Clustered Panel .The single tile goes into pending linked mode and becomes the part of cluster once this is approved via credit application

This button is used to remove the portfolios from the Clustered Portfolio Panel. If portfolio is un-clustered the it goes into pending de-linked mode and becomes a live single tile once this is approved via credit application 17 June 2012

Clustering Concepts
Clustering  Grouping of two or more Single Tile Portfolios into a single clustered portfolio against which Credit Officers can set operational limits in a more flexible way. A portfolio can either be horizontally or vertically clustered.
Vertical Clustering  Clustering across counterparties or facilities but covering a uniform Business Area
Legal Agreement DB Entity Business Area Facility

Tata Group

ISDA-EQUIV

DB Lon

REPO

FX

Facility 1

Tata AIG

ISDA-EQUIV

DB- SNG

REPO

BASE METAL

Facility 2

TCS

ISDA-EQUIV

DB- HK

REPO

BOND OPTIONS

Facility 3

Tata Sons Ltd

ISDA-EQUIV

DB- Tokyo

REPO

ENERGY

Facility 4

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Clustering Concepts
Horizontal Clustering  Clustering across different Business Areas within a single facility. Paragon will only allow for the creation of Horizontal Clustered Portfolios in the case of collateralised portfolios.  Exception to the above rule is Repos where Paragon does allow its inclusion into a Horizontal Clustered Portfolio regardless of whether or not the collateralised flag for the facility has been turned on.
Legal Agreement DB Entity Business Area Facility

Tata Group

ISDA-EQUIV

DB Lon

REPO

FX

Facility 1

Tata AIG

ISDA-EQUIV

DB- SNG

REPO

BASE METAL

Facility 2

TCS

ISDA-EQUIV

DB- HK

REPO

BOND OPTIONS

Facility 3

Tata Sons Ltd

ISDA-EQUIV

DB- Tokyo

REPO

ENERGY

Facility 4

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Key Terms
Limit  Maximum amount that borrower can borrow under a facility.  It is assigned to a single tile or a clustered portfolio. Grey Limit

 Limit assigned to a portfolio to manage exposure but not visible to the trader.
Null Limit  Portfolio without any limit created by default when a business area is added to a facility. Such Portfolio do not require any credit approval .However once a limit is assigned , this should be approved via credit application process  Zero limit differs from a “Null limit” in that a Zero limit is a credit-approved limit (i.e. a Credit Officer has intentionally assigned a Zero limit to a Portfolio). Zero limits, unlike Null limits, are subject to the credit application process  Technically Null limits are identified by the „Null‟ flag on the facility TCCE Limit  Limit based on a haircut % of CCE limit. TCCE limit is visible to the trader.  Haircut % to determine TCCE limit is now driven by the Counterparty PD Rating.

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Maintain Limit
This screen is used to capture CCE and PFE limits against the Tenors

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View Trade Details
This screen is used to view the trades which have happened as per the facility .Trade (transactions) data is fed from the source systems into Paragon and mapping of the trades is done manually by Credit Operations team.

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i

Facility

ii

Participating Branches & Netting Set

iii

Portfolio

iv

Product Group Overview

v

Miscellaneous

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Product Group Overview
 This is one of the most important screens in Paragon . It shows a full summary of the facilities , limits, exposures and trades for a counterparty  It also provides navigation to various other screens and serve as a entry point to create facilities, Netting and Clustered Portfolio  Each risk module in Paragon has its own PGO screen and navigation to other module‟s PGO is provided from each of these screens .Hence by going into one PGO user can navigate across module data and perform the required activities

Please refer CP Admin Module

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PGO – Key Elements
Buttons provided for navigating to other modules PGO Option to toggle between display of live and pending limits and net and gross utilization

This panel gives the summary of the aggregated limits, facility details etc

This panel shows the Counterparty aggregated limit and utilization & availability

This panel shows the counterparty hierarchy and the details of the selected counterparty

This panel shows the Group level aggregated limit and utilization & availability
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i

Facility

ii

Participating Branches & Netting Set

iii

Portfolio

iv

Product Group Overview

v

Miscellaneous

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CSA ID Search

On entering the CSA (Credit Support Annexure) ID the CSA ID & the corresponding facility ID gets displayed.
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Delete Zero Limit
 To delete the Zero Limit , from the counterparty list , select the counterparty ,right click and click delete Zero limits.  Post deletion the status will change to Pend-closure. Post credit application process the Zero Limit would be finally deleted.

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Thank You

17 June 2012

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