Trio Join to Address Derivatives Regulation
Three companies – international legal practice Allen & Overy, business information provider IHS Markit and SmartDX™ from customer communications management leader Smart Communications™ – have come together to launch Margin Xchange™, a new product for the derivatives market.
Margin Xchange is an online platform that covers all stages of the mass repapering of derivatives contracts required to comply with Initial Margin (IM) regulations. It provides information reconciliation, document generation, negotiation and execution, case management and a full data export. It not only drives greater cost and time efficiency in the process for agreeing the documents, but also achieves the long-held goal of treating derivative documents as data, by using a document format that is human and machine readable.
IM regulations are already affecting around 40 bank groups globally, but that number will explode in 2019 and 2020 as hundreds of new counterparties are brought in scope. Margin Xchange has been designed to process the high volume of new negotiations and the extension of IM requirements to buy-side entities, catering for the operational challenges connected with umbrella agreements covering multiple funds and multi-manager funds.
Margin Xchange puts the entire process on to a single online platform. It enables counterparties to bulk import and reconcile counterparty data; mass upload and agree their term sheets; generate and customize all IM documents; run all negotiations and drafting; execute by electronic signatures and capture the full audit trail of every negotiation point, internal escalation and sign-off. Crucially, users will be able to record every variable as a data point, rather than text, enabling them to maintain a clear view of progress at every stage during the repapering task, provide higher quality progress reports to regulators and represent the documents as data that can be stored and interrogated in the future with ease.
Margin Xchange combines Allen & Overy’s legal knowledge and track record of tech-enabled solutions to meet clients’ biggest, most complex regulatory challenges with the established technology, data and process management expertise of IHS Markit and SmartDX, from Smart Communications. Development of the service was led by David Wakeling, derivatives partner at Allen & Overy in London.
“The need for a smart tech solution to the Initial Margin problem is something that the industry has been alive to for a number of years, but it’s only with the expertise of IHS Markit and SmartDX that we’ve been able to develop a platform like Margin Xchange,” said Paul Cluley, derivatives partner at Allen & Overy. “As well as being a solution to the IM challenge, this marks a defining point in legal documentation. Automated drafting has been around for years, but it is only when we apply technology to every stage of the process, and recognise that a document can be viewed as really just a collection of data points, that we can take a leap forward in this way.”
“MarginXchange is a next generation platform to negotiate complex agreements and to extract structured contract data for downstream consumption into risk systems,” said Darren Thomas, managing director and head of Counterparty Manager at IHS Markit. “When new regulation requires firms to change core terms in trading documents, having a single platform with which to communicate, negotiate and store documents is critical to creating systemic efficiencies and reducing risk.”
“Margin Xchange will allow users to achieve the highest standards of risk management and governance in IM, reduce the time and cost of the repapering exercise and maximise the efficiency of negotiations,” said Robin Moody, global head of SmartDX. “More even than that, it creates a new model for how legal documentation could be drafted, negotiated and recorded in the future.”
A number of Libor rates will cease to exist at the end of this year.
Pension funds in Asia have significantly increased their international exposure.
Temporary equivalence is set to expire on June 30 2022.
Clients want short-dated options to hedge or trade with more flexibility around market-moving events.
IRS trading volumes have fragmented without an equivalence agreement.