With little more than a year to go before a September 2016 implementation deadline for margin rules for non-cleared swaps, OTC users face a multitude of compliance challenges, including mandatory exchange of bi-lateral initial margin, automated processing of segregated collateral assets, verified management of collateral disputes, and unbundling of collateral movements into currency specific silos.
The new regulations, promulgated by the Basel Commitee on Banking Supervision and the International Organization of Securities Commissions (Iosco), will take effect on September 1, 2016. Once implemented, it is expected that margin volumes will surge three to 10 times above current levels.
“It's a very significant impact on the market,” Chris Walsh, chief operating officer of AcadiaSoft, which provides a margining platform for OTC derivatives, told Markets Media. “Today, derivatives margin call activity is about 50,000 calls per day and we're going to see that multiply pretty significantly. The reason is that regulators have placed a strong focus on reducing systemic risk.”
In September 2013, the Working Group on Margin Requirements, an initiative jointly run by the Basel Committee on Banking Supervision and Iosco issued the final margin policy framework for non-cleared, bilateral derivatives.
AcadiaSoft’s MarginSphere platform automates the margin process, including matching of margin, comparison of necessary inputs and agreement of calls and movements, the company said in a release.
The company has launched a new version of the platform, MarginSphere 2, that will enable buy-side and sell-side firms that comprise the AcadiaSoft community to comply with the 2016 regulatory requirements. MarginSphere 2 is the result of collaboration between AcadiaSoft, its Industry Working Groups and the major market participants and infrastructures that participate in the AcadiaSoft community.
“What we've done as a group is study the rules, identify changes and what needs to be updated in order to not only process margin calls, but to calculate margin and to manage and prevent disputes in the market,” Walsh said. “We’re offering a service that enables clients to reduce their level of disputes by interactively being able to exchange information and resolve those disputes on a same day basis.”
AcadiaSoft has worked closely with several major OTC derivatives banks who collaborated on developing new standards for non-cleared margin. “We not only provide a service that connects all these counter parties, but we provide a standard by which these participants can engage each other to transact margin calls and reduce risk,” said Walsh.
