Seven Considerations about Initial Margin


CloudMargin have been hard at work considering the key issues for firms who might be beginning to exchange IM for uncleared OTC products in any of the next three Septembers. A team of experts have put together a paper of 15 pages with explanatory diagrams and around 5,000 words which will help firms new to IM orient themselves and begin planning.

It is a coincidence that ISDA published their own briefing paper only a few days ago which covers similar topics. The ISDA paper is quite alarming about the liklihood of firms missing the compliance deadlines due to the resource crunch over the next 25 months.  The advice from ISDA for any firm who thinks they might be in scope in 2020 is to start immediately with their compliance project, or potentially miss the September 2020 deadline and possibly be blocked from trading (by your counterparties) due to non-compliance.

Through seven key considerations, the white paper explores the IM regulations and challenges to be tackled from the perspective of a collateral management and OTC derivatives operations leader. It is designed to help the reader understand what to consider, within a specific timeframe, and how to meet their compliance date across the areas of law, risk, operations and technology.

  1. Have you allowed enough time? (The paper provides a high level time plan until September 2019)
  2. Are you in scope? (A reminder on the average notional calculations)
  3. Have you understood the operational impact of exchanging IM? (The operational impact is significant)
  4. Have you considered the many implementation approaches? (There's many ways to implement the a software platform to enable exchange of IM)
  5. How will your firm calculate IM? (Not only that, do you realise that you also have to get approval for the model and software you choose by testing in advance?)
  6. Have you selected a custodian or triparty agent? (There's a few available, your counterparties may choose other from you)
  7. Have you begun work on the legal documentation? (The documentation required explained by DRS LLP)

This paper is the start of a sequence of activity from CloudMargin over the coming months to provide the industry with knowledge and education surrounding uncleared IM, and access to experts to help figure the topic out.

Jump to the new IM landing page and sign-up to avoid missing the events, or go right to the white paper and give your feedback on whether it hits the right notes, in the comments.

Disclosure: I was personally involved in writing the white paper along with the team at CloudMargin. It comes with my recommendation of course ;-)