Bloomberg today announced that HSBC Private Bank, and more than a dozen corporations and financial institutions, have adopted Bloomberg’s MARS Collateral Management and reconciliation solution to comply with new variation margin requirements for non-centrally cleared over-the-counter (OTC) derivatives.
Starting in March, participants in the $200 trillion (USD) market for non-centrally cleared OTC derivatives will need to adhere to stricter requirements imposed by global jurisdictions. These rules are intended to reduce systemic risk, but present costly operational challenges to investors who will need to calculate and post initial and variation margins for all non-cleared trades, classify eligible collateral to post and deal with an increase in margin calls and daily calculations.
Bloomberg MARS Collateral Management is part of a comprehensive solution that helps banks, investment firms and corporations facilitate the collateral management and reconciliation process to adhere to these new requirements.
“It’s a business imperative to trade these types of instruments, so compliance too becomes a business imperative,” said Kpate Adjaoute, Managing Director at HSBC Private Bank (Suisse) SA. “We anticipated that these reforms were coming. It helps to centralize the process and have access to the data we need, as well as the counterparties with whom we trade.ˮ
Bloomberg is helping firms value complex derivatives, manage collateral agreements, calculate margin requirements, send margin calls to counterparties, reconcile trades and book collateral to their portfolio. Pulling together these capabilities and connecting customers to other market participants improve a company’s workflow and lessen the operational and compliance burden, involved in operating the non-centrally cleared OTC derivatives markets.
“The challenges investors face in the OTC derivatives market cannot be addressed with software alone,ˮ said Phil McCabe, Global Product Manager for Collateral Management at Bloomberg. “Bloomberg provides the data and analytics to calculate and reconcile margin requirements. We go further by connecting a global network of corporations and investment firms, both large and small, to unify what can be a very laborious, risky and disjointed process.ˮ
Bloomberg MARS Collateral Management allows customers to centralize their collateral management workflow and automate how they manage and monitor risk exposure and collateral positions. It provides cross-product, cross-asset support for Dodd-Frank and EMIR compliance, effective capture of legal documentation, automated messaging, risk analytics and portfolio reconciliations.
To complement its multi-asset risk solution, known as MARS, Bloomberg licensed ISDA’s Standard Initial Margin Model, or SIMM, for calculating initial margin to help trading desks and collateral managers calculate the amount of collateral that needs to be posted. Bloomberg also provides a data license product and look-up feature on the Bloomberg Terminal {COLT} that helps investors identify collateral eligible to post in different jurisdictions. Bloomberg also provides aggregation and eligibility checking services for bilateral and triparty repo agreements.
In June 2016, Chartis Research recognized Bloomberg’s comprehensive collateral management solution in its Enterprise Collateral Management Systems for the Trading Book report. Bloomberg also advanced into the top 20 vendors reviewed by Chartis in its annual RiskTech100 ranking of leading risk and compliance technology vendors.
Hugh Stewart, Research Director at Chartis Research noted, “The need for simplification and automation of risk and compliance processes has encouraged adoption of cloud-based technologies and managed services. Bloomberg’s collateral management software, as a component of its end-to-end solution set for asset account valuation, reconciliation and settlement is one of the reasons Bloomberg continues to rise on our RiskTech100 ranking.ˮ