May 3, 2014

The impact on collateral operations | Risk & IBM survey

Risk magazine sponsored by IBM conducted a global survey from 28 February until 27 March 2014, polling 130 Sell & Buy Siders in a first effort to enlighten us a bit more on where industry stands with its preparations with regards to the upcoming margin regime for non cleared OTC Derivatives, expected to be implemented in phases between 2015 and 2019. It covers the areas of Initial Margin computation, increased collateral requirements and restrictions on rehypothecation as well as the impact on collateral operations.

Amongst others my key points to take away: 

  •  The prospect of computing the requirements using the standard initial margin model (Simm) under development by the International Swaps and Derivatives Association (Isda) is the most popular option among larger dealers
  • 17% of the firms reported that more than 30% of their transactions are expected to remain uncleared
  • On infrastructure plans, 44% plan to enhance existing systems only; 27% expected to add a new vendor solution to their enhancements; and 13% were considering a new vendor solution apart from their existing system
  • 45% ranked initial margin modelling requirements as the most difficult aspect of meeting the rules and 47% of sell-side firms reported being concerned with meeting the requirements
  • 43% will look to increase the centralisation of their collateral allocation decision-making meaning that firms will be looking to make investments in technology to improve operational efficiency 

Can't help thinking that it will be a struggle for vendors to acquire as much market share as possible. What a lucrative opportunity this will be!

Maria L.



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