SaaS Collateral Management Technology Saving time, reducing risk, coping with regulation Who are CloudMargin The Opportunity The Business Case Appendices 3 6 11 17 2
Who Are CloudMargin? 3
A CloudMargin Overview 13 1 4 Staff Industry 3 Awards Existing Links to: Solution Projected Sales 2016 3 3 Official Partners Market Utilities Trade Repositories 6 $350K Recurring Revenue 2015 Collateral Agreements on the platform Clearing Brokers
Who are CloudMargin? The Team Steven Husk (MBA) - Executive Chairman of the Board Steven is an angel investor and independent director who has worked primarily in the financial services software space. Current investments include Rivo Software - a UK company in the GRI space, Dovetail a payments software solution and Point9 - a cloud based mid and back office solution. Andy Davies - Founder & CEO 10+ years experience in collateral management at Northern Trust, JPMorgan & Pirum, most recently running Collateral Management sales for Omgeo. Stuart McHardy - Co-founder & Managing Director 10+ years experience in collateral management at Northern Trust, JPMorgan & HSBC, most recently running Collateral Management product development for Omgeo. Edward Boggis-Rolfe - CTO 15+ years experience in financial services IT including work at Sungard, principally in collateralised products, developing real-time high performance web applications. Investors: Richard Berliand advisor to the board: 23 years with J.P.Morgan, most recently running the Firm's Global Cash Equities and Prime Services group of businesses (including Futures & Options, Prime Brokerage and Broker Dealer Services). Also led JPM's Market Structure Practice. Now holds a portfolio of non-executive activities (including the Deputy Chairmanship of Deutsche Börse AG) and a regular angel investor in the Fintech space. Illuminate Financial - VC investor Illuminate Financial Management LLP was founded in 2014 as a London-based venture capital firm with global mandate, exclusively focused financial technology that benefits capital markets participants. 5
The Opportunity 6
The Opportunity What Does the Industry Say? Problem #1 Collateral management arguably the greatest problem facing modern trading firms Editorial - Futures & Options World - 21 September 2015 Collateral management has become a much more urgent, business-critical concern for a much wider range of institutions active in the global securities and derivatives markets, encompassing banks, brokers, investment managers, hedge funds, pension funds, insurance firms and other asset owners. BNY Mellon October 2015 $53bn The financial services industry is expected to invest $53bn in technology and infrastructure to address inefficiencies in the clearing and collateralization environment Celent Maximising Collateral Advantage: A survey of Buy Side Business and Operational Strategies. May 2013 If you were to develop your operating model today from scratch, you could use OpenGamma to price pre-trade, CloudMargin to deliver the margin, AcadiaSoft for the messaging, and TriOptima for compression. That model would work wonderfully, Ricky Maloney (Head of Buy-side Client Engagement, Eurex - CCP, DerivSource Webinar. Jan 2016) 7
The Opportunity Collateral Management Explained WHAT IS COLLATERAL MGMT? WHO IS INVOLVED? HOW IS IT DONE TODAY? WHY NOW? The process of reducing counterparty credit exposures through the exchange of cash or securities collateral Any firm trading derivatives*- from the largest global investment banks to small corporations hedging financial risk - tens of thousands of firms globally, increasing all the time as regulation brings more firms into scope For all but the very largest dealers, collateral is typically managed using spreadsheets or other User Developed Tools. Using these solutions makes collateral management highly manual, time consuming and prone to error Regulation changes post 2008 have fundamentally changed the collateral management world. These new regulations are now coming on stream and even where firms are currently exempt, they are not immune *Collateral management is also used with financial products such as Repo and Securities Finance 8
The Opportunity Collateral Management in Numbers Source: PwC 1 International Swaps and Derivatives Association (ISDA), "Margin Survey," June 2013. 2 Bank of England, "OTC Derivatives Reform and Collateral Demand Impact, October 2012. 3 Celent "Maximizing Collateral Advantage: A Survey of Buy Side Business and Operational Strategies," May 2013. 4 Depository Trust & Clearing Corporation, "Trends, Risks and Opportunities in Collateral Management," January 2014. 5 International Monetary Fund, The Changing Collateral Space," January 2013. 9
The Opportunity Problem Statement COLLATERAL MANAGEMENT IS MANUAL, EXPENSIVE AND PRONE TO ERROR REGULATION IS MAKING THE PROCESS INCREASINGLY COMPLEX TRANSACTION VOLUMES ARE EXPECTED TO INCREASE BY UP TO 1000% Most firms either rely on spreadsheets or outdated technology with poor upstream/downstream connectivity. Dodd-Frank, EMIR, Basel III, BIS-IOSCO etc are adding new challenges such as central clearing, mandatory variation margin, initial margin etc. Manual intervention increases risk whilst reducing scalability. Firms are worried about being able to cope in the future Firms are being forced to do much more and cope with added complexity. Legacy solutions are poorly suited to current requirements 10
The Business Case 11
The Business Case Platform Benefits Intuitive User Interface Configurable Workflow + = Reduction in Cost & Risk 12
The Business Case A technology platform accessible to all, copes with the latest regulation and removes volume sensitivity AFFORDABLE Transparent Costing - pay-as-you-go Priced to compete with Excel Immediate ROI Mutualised regulatory change costs UNDERSTANDABLE Simple, web-based UX Process standardisation Intuitive, visual, logical Designed by Collateral Managers COMPLETE Multi asset-class coverage Supports current and future regulation Full collateral life-cycle coverage Makes non-cash collateral easy CloudMargin s pricing starts at around 1/10th of competitors - accessible to the whole market Implementation takes weeks not months, saving time and money No expensive technology to support, patch or upgrade CloudMargin is designed for modern work practices Intuitive workflows and best-practice allow less experienced and cheaper staff to be utilised without compromising on control Makes complexity seem simple Legacy systems date very quickly and don t stay up to date with industry developments without significant expense CloudMargin supports all latest regulation Latest features available to all users 13
The Business Case The only cloud-based platform for the management of collateral and counterparty risk Delivering Control, Mastering Regulation, Driving Efficiency Source: PwC we just agreed to everything they [investment banks] asked us to do, now we re calling the shots thanks to you guys Deputy Head of Treasury, FBN Bank (UK) Ltd, April 2015 14
The Business Case Four Revenue Streams LARGE DEALERS TIER 1 BANKS ASSET MANAGERS CORPORATES Selling to Investment Banks in bulk to automate their majority manual client base and reduce their support costs. Banks are diversifying away from traditional, highly capital intensive activities and looking to provide 3rd party collateral management solutions to their clients. Large Hedge Funds, Insurers, Smaller Banks for their own use. Treasuries for their own use. 15
The Business Case Competitive Landscape Features missing In house solutions - spreadsheets Lacks control and robustness, very manual, hard to integrate Not liked by regulators In house solutions - custom developed application Huge development cost, only suitable for the very largest firms Significant effort required to stay up to date Expensive Low cost Outsourcers- BNYMellon etc High cost, much of the process stays with the client Legacy software firms - Sungard etc High cost, long sales cycle, slow to implement. Hard to keep up to date, new features require slow, costly upgrades The features the client needs at the price they can afford State of the art, easy implementation Latest features readily available 16
Appendices 17
Appendix One Testimonials Metro Bank: Alex Cockerell, Head of Treasury at Metro Bank - Metro bank had the need for a collateral management tool, but not the appetite for investing in expensive big bank collateral management systems and infrastructure. CloudMargin offered a costeffective; pay-as-you-go; plug-and-play cloud-based system, so there was no need for IT hardware, software or implementation spends. But most importantly the tool is simple and intuitive to use, and saves us time. Old Mutual Global Investors: Dan Cunningham, Head of Investment Operations at Old Mutual Global Investors - I ve been really impressed by the system s functionality and by how straightforward the onboarding process was. CloudMargin has also been very responsive to our requests for enhancements. Aite Group survey of collateral management systems 2015: CloudMargin s user interface is by far the most colourful and user-friendly of the vendor offerings in this space, which makes it ideally suited to users that are not accustomed to using an incumbent collateral management technology solution. 18
Appendix Two Regulation Timetable G20 derivatives reform agreed EMIR enters into force 1st Mandated clearing under EMIR - largest banks 2nd Mandated clearing under EMIR >8bn threshold 3rd Mandated clearing under EMIR - <8bn threshold 2008 Jul 2010 Mar 2013 Q3 2016* Q1 2017* Q4 2018* Sep 2009 Aug 2012 Q2 2016* Q4 2016* Q2 2017* Financial Crisis Dodd-Frank Act becomes law First mandatory clearing in US Mandatory IM & VM on no-cleared swaps under BIS/IOSCO starts Mandated VM for all remaining covered entities for BIS/ IOSCO 4th mandated clearing under EMIR non financials *Expected Sources: LCH/SWAPCLEAR and BIS-IOSCO 19