Buy Side Wants Margin-Rule Delay
Firms will not be able to trade if documentation is not completed.
More than a third of the audience at Clearstream’s Global Funding and Financing Summit said they are still preparing documentation for new margin rules that come into force in March.
Counterparties will have to exchange variation margin for non-cleared over-the-counter derivatives from 1 March 2017. They are not being phased in, unlike the initial margin rules that went live in September last year, and so will immediately apply to a wide variety of counterparties including dealers, buyside firms, pension funds and corporates.
Eurex Group, the clearing unit of Deutsche Börse Group, tweeted today: “35% of #GFFSummit17 audience still putting agreements in place for the implementation of variation margin by March 1.”
Dealers will not be able to continue trading after March 1 for clients that do not have documents completed by early February.
In addition, in the US the Securities Industry and Financial Markets Association’s asset management group and the Investment Adviser Association sent a joint letter today asking for six-month transitional relief from the March variation margin requirements and additional transitional relief for foreign exchange clients. The letter said asset managers are concerned about their ability to hedge, manage investment risks, implement investment strategies, and achieve best execution on behalf of their clients.
The associations surveyed member firms on their readiness for the new rules and received responses from 38 of the 41 asset management firms on Sifma’s uncleared swaps margin working group, many of whom are joint IAA members, and IAA received an additional 4 responses. The study found that at least 2,800 agreements need to be completed to cover existing trading relationships, of which approximately 1,800 are multi-client “umbrella” agreements that often are used to cover anywhere from 10 to 100 clients each.
“The umbrella agreements not yet completed are needed for thousands of client accounts and involve all client types (U.S. registered funds, Ucits, public and private pension funds, hedge funds, private equity funds, and other institutional clients,” said the letter. “The large volume of work described above cannot be completed by the early February deadline imposed to operationalize CSAs.”
In order to allow more efficient exchange of bilateral margins LCH, the clearing business owned by the London Stock Exchange Group, has announced the launch of LCH SwapAgent in the first half of this year. LCH SwapAgent will process OTC bilateral rates and foreign exchange trades so clients can standardize document terms, margining and payment processing.
Today LCH said SwapAgent will supply risk calculation data to the AcadiaSoft Hub, the first central margining service for non-cleared OTC derivatives.
Last September, all 24 global banks that were subject to the new OTC derivatives margining regulations started using the AcadiaSoft Hub and more than 150,000 daily trades were seen within the first two weeks of the new regulations coming into force. The Hub automates the end-to-end margining process between participants by calculating margin, reconciling exposures and sensitivities, and agreeing margin on a central, standards-based platform.
AcadiaSoft’s users calculate their own trade level risk factors for submission to the Hub for reconciliation between the two counterparties and completion of the initial margin calculation. LCH said that using independently calculated risk factors from SwapAgent will eliminate trade level disputes and make the margining process more efficient. Firms can choose to use LCH calculations to either drive their primary calculation or as a tool for comparison and dispute resolution.
Chris Walsh, chief executive of AcadiaSoft, said in a statement: “This new on-Hub service will simplify the margining process for firms using AcadiaSoft to comply with the non-cleared margin rules, without having to significantly overhaul their existing processes. The addition of LCH calculations expands the Hub’s content and its function as a one-stop shop for collateral and risk services.”
Writing essays to support trading decisions "is not ideal."
Lack of a consolidated tape and cost of market data were raised.
Two separately-listed companies will be formed.
Buy side's need for transparency sparks a renaissance in high touch.
Double volume caps should boost LIS and auction volumes.