(Editor’s note: This video interview was conducted before the changes to Phase 5 were announced in July. However, the overriding insistence on avoiding procrastination still stands.)
Most buy-side firms have taken the first steps in deciding if they are in scope for the new requirements of the Uncleared Margining Rules (UMR). They will have to continue to keep up with the time-line because procrastination could be problematic.
The buy side is focusing on the operational processes they will need to comply with all of the rules that govern margin requirements for the noncentral clearing of over-the-counter (OTC) derivatives, which constitute the UMR rules.
The first step for buy-side firms is to calculate the Average Aggregate Notional Amount (AANA) as that number will determine if a firm needs to comply with the looming requirements.
For Phase 4, the AANA threshold has been set at greater than €750 billion ($841.2 billion) of outstanding amount of non-cleared derivative positions during March, April and May of this year with an initial margin compliance date of September 1, 2019.
For Phase 5, the regulators in July split the in-scope firms into two groups and extended the deadline for the new group.
The regulators have created a new segment from the original Phase 5 group. The new segment will consist of firms with gross AANA of non-centrally cleared derivatives ranging from $8 billion to $49.9 billion, and this group has a one-year deadline extension to September 1, 2021.
At the same time, the regulators have kept the IM go-live deadline of Sept. 1, 2020 for firms that have gross AANAs of non-centrally cleared derivatives that range from $50 billion up to $749.9 billion. Previously, the AANA threshold for Phase 5 extended down to $8 billion.
“I think there’s a monitoring process that they have to go through where you can come up with your AANA calculation to determine if you’re above the eight billion,” says Scott Linden, a collateral management subject matter expert (SME), who spoke to FTF News during the DerivOps North America 2019 conference.
“But you may not be above the $50 million collateral threshold,” Linden says. “And there are some monitoring tools that will allow you to be in a state of readiness when you actually do have to post collateral. Because you cannot wait until the last minute and expect that you’re going to have a custodial relationship right there unless you have already spoken to that custodian and you’ve begun to negotiate the account control agreements with your custodian as well as your counterparty. There’s a certain amount of readiness that has to be done.”
Linden was a panelist in the “IM Compliance Widens Its Reach” session.
Click on the image above to watch the entire interview.
CREDITS:
Video Production: videography by Sean O’Connor Video Productions and video editing by Janene Knox
Interview conducted by Eugene Grygo, chief content officer, FTF News
Co-Producers: Sarah Hathaway, vice president, Financial Technologies Forum (FTF) and Eugene Grygo
