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Monitoring OTC trades to ensure IM compliance

In late March, the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO) issued guidance to national regulators stating that Phase 4 and 5 firms need not negotiate documentation with counterparties or become operationally ready if the trading relationship with any given counterparty was below €50m. The International Swaps and Derivatives Association (ISDA) and the Securities Industry Financial Market Association (SIFMA) had been pushing for this and other concessions, and this was the only one IOSCO opined on.

The phasing in of the new margin rules for uncleared over-the-counter (OTC) derivatives began in 2016. There have been three phases so far, with Phase 4 due to come into effect in September 2019 and Phase 5, the final phase, in September 2020.

From those two dates Phase 4 and 5 firms will have to post and receive initial margin (IM), with one important exception: they will NOT have to post IM if the post compliance date IM exposure associated to any individual counterparty group is less than €50m. Around 1,000 firms could be in scope for IM Phase 5. If national regulators follow the BCBS and IOSCO guidance, it is estimated that up to three-quarters of them will benefit, as they are unlikely ever to exceed the €50m threshold and therefore not need to move margin. The Hong Kong Monetary Authority and the US Commodity Futures Trading Commission have publicly supported the guidance. Other regulators around the globe are expected to follow suit in the coming weeks and months.

However, as soon as that threshold is reached, the IM will have to be exchanged. And the problem is, it will be difficult for firms who have delayed their compliance procedures to know when they are close to the threshold, or when it has been reached or exceeded. 

Shortly after the BCBS and IOSCO issued their guidance, industry-owned and backed RegTech firm AcadiaSoft announced it was extending its existing capabilities to provide an IM Monitoring Service for firms to track their IM exposure with their counterparties, view when they were likely to reach the threshold, and then take appropriate action to complete the relevant documentation and meet the other IM requirements. The Initial Margin Monitoring Service, expected to be launched later this year, was specifically designed to help Phase 5 firms keep track of their estimated IM exposure amounts with each of their counterparties.

The new service is based on the central IM functions that AcadiaSoft already performs daily on global OTC transactions. Every firm currently in-scope for the uncleared margin rules sends its IM exposure to AcadiaSoft daily for IM calculation and reconciliation via the AcadiaSoft Hub. With every prior phase firm connected to the Hub, firms can send their anticipated IM exposures to Phase 5 firms and AcadiaSoft can aggregate the data to provide a single view of IM exposure across all of a Phase 5 firm’s trading relationships. By proactively monitoring IM exposure amounts before they meet the €50m threshold, Phase 5 firms will be able to adapt more swiftly to meet the regulatory requirements.


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Mark Demo

Mark Demo

Head of Community Development


Member since

06 Jun 2019


New York

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