Fund Managers Could Save Millions By Clearing
Asset managers dragged into new rules making Over The Counter (OTC) derivatives more expensive to trade could save millions of dollars through clearing, according to new research from OpenGamma.
The study shows that asset managers pulled into phases four and five of the global Uncleared Margin Rules (UMR), which forces the posting of upfront collateral when doing trades, will be able to save up to 53% in initial margin when clearing compared to uncleared margining. For asset managers with portfolios above €750bn in notional, clearing a greater volume of OTC trades frees up potentially millions of dollars worth of assets to put to use elsewhere.
The findings come as the industry continues the operational slog of preparing itself to post an eye watering $2 trillion more margin as a result of the rules, the final phase of which has been pushed out until 2021 . This means that thousands of asset managers, that have previously never had to post margin, will have much needed additional time to get their operational houses in order.
“The overarching goal of UMR is to strongly incentivise asset managers to stop trading bilateral uncleared derivatives, and shift towards central clearing,” said OpenGamma’s CEO Peter Rippon in response to the research. “Unfortunately, it’s not as simple as just deciding to clear, firms then need to decide where to clear. A derivative may be eligible to clear at numerous venues, but an asset manager then needs to factor in liquidity and whether they have an existing position, not to mention any pricing discrepancies between the clearing houses.
Rippon concluded: “The trouble is, at a time when investors are putting fund performance under the spotlight following Neil Woodford’s woes, the last thing asset managers need is to be restricted from delivering strong returns. This problem can be solved, which is why we are seeing more firms carefully considering the differences in the margin calculated, and level of margin that will be required for UMR.”
The partnership increases interoperability across the European post-trade landscape.
Cboe Europe Derivatives is due to launch in the first half of 2021.
Margin calls increased due to volatility caused by the Covid-19 pandemic.
Open access regime delayed until 4 July 2021.
In March Japanese regulators allowed financial institutions to directly access Eurex Clearing.