Industry Prepares for New Margin Rules01.12.2016
Icap, the inter-dealer broker and provider of post-trade risk mitigation products, has launched a service to automate the calculation and exchange of margins for over-the-counter derivatives which are not centrally cleared, ahead of the new regulations due in September.
Since the financial crisis regulators have been aiming to make the financial system more stable and so are introducing new margin and capital requirements for non-cleared OTC derivatives. The Basel Committee on Banking Supervision and the International Organization of Securities Commissions initially wanted the largest banks to begin exchanging margins on non-cleared OTC derivatives last year but delayed the implementation to 1 September 2016 to finalize the rules globally and give the industry more time to prepare.
TriOptima, an Icap unit, has launched triResolve Margin, a web-based, end-to-end margin processing solution with software provider AcadiaSoft.
David White, product marketing executive at triResolve, told Markets Media: “There is a lot of work to be done in meeting the deadlines and ensuring compliance. We have seen a lot of interest and expect that to grow when we get more final rules in the next few months.”
The buyside will have to start exchanging margin from March 2017.
“There will be a dramatic increase in margin call volumes from September and the rules will require a daily exchange with zero thresholds,” White added. “Collateral management will be regulated for the first time so, as well as checking suitable calculation and movement, it is likely regulators will place an emphasis on dispute resolution.”
He said triResolve is already used by more than 1,500 clients, covering 95% of the collateralized derivatives market, to reconcile portfolios and collateral balances.
“We have added margin calculation functionality and uniquely linked it to the portfolio reconciliation process,” added White. “We aim to move the industry away from manual fragmented processes to looking at exceptions and discrepancies and focussing on risk management.”
AcadiaSoft’s MarginSphere technology is being used to send automated messages for margin calls after automatically checking against eligibility rules. Automation allows disputed margin calls and exceptions to be flagged quickly for further investigation
In July last year four global banks, as well as Icap and market infrastructures The Depository Trust & Clearing Corporation and Euroclear invested in AcadiaSoft, bringing the total bank investors in the company to 13. At the time AcadiaSoft said it would link MarginSphere with triResolve and also the Margin Transit Utility to be operated by the DTCC-Euroclear GlobalCollateral joint venture.
Alastair Blackwell, global head of service operations at Barclays, said in a statement at the time: “When new rules requiring margin for non-cleared derivatives go into effect in 2016, we expect margin volumes to surge above today’s levels. With this investment in AcadiaSoft, the industry is supporting a market-wide solution to the operating challenges posed by the new regulations to provide scale, reduce risk and encourage standardization for all participants.”
Featured image via iStock
As rates and volatility rise, the need to optimise the value of collateral is greater than ever.
Same-day execution reduces clients’ risk and resources as optimization can take up to 5 days.
Initial margin for centrally cleared markets increased by $300bn over March 2020.
More buy-side firms will be caught by the new rules.
Exposures and margin calls can be monitored in real-time.