{"id":16066,"date":"2014-12-01T22:50:11","date_gmt":"2014-12-01T22:50:11","guid":{"rendered":"https:\/\/wordpress-693215-2610341.cloudwaysapps.com\/index.php\/2014\/12\/01\/buy-side-prepare-bcbs-iosco-recommendations-adopted-by-global-regulators-in-2015-omgeo\/"},"modified":"2014-12-01T22:50:11","modified_gmt":"2014-12-01T22:50:11","slug":"buy-side-prepare-bcbs-iosco-recommendations-adopted-by-global-regulators-in-2015-omgeo","status":"publish","type":"post","link":"https:\/\/theotcspace.com\/buy-side-prepare-bcbs-iosco-recommendations-adopted-by-global-regulators-in-2015-omgeo\/","title":{"rendered":"Buy-Side Prepare: BCBS-IOSCO Recommendations Adopted by global regulators in 2015 | Omgeo"},"content":{"rendered":"

Rick Enfield from Omgeo explains what the buy-side need to be doing, to prepare for existing and future regulatory change.<\/p>\n

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Buy-Side Prepare: BCBS-IOSCO Recommendations Adopted by global regulators in 2015
\nBy Richard Enfield, Omgeo<\/h3>\n

The need to efficiently monitor and process collateral will have an increasing impact on the buy-side from both inventory\/liquidity management and cost perspectives.  Regulations and common market practices are coalescing around requirements governing margin practices for centrally cleared and bi-lateral derivatives: position reconciliation with counterparties, & transaction, position and collateral reporting to data repositories.<\/p>\n

Regulatory Impact<\/h3>\n

There has been a great deal of focus on the clearing, reporting, and reconciliation requirements of Dodd-Frank and EMIR.  The transition to clearing for standard swap transactions has gone fairly smoothly in the US and nearing implementation in Europe.  Reconciliation practices are also well established, although many firms are still relying on manual processes to manage their collateral operations.  However, complying with reporting requirements has been bumpier due to the lack of clarity around the requirements, lack of legal entity identification standards and the multitude of firms looking to service the global reporting requirements.  <\/p>\n

Less attention has been paid by buy-side firms to the upcoming impact of the BCBS\/IOSCO requirements and standard CSA currency basis margining standards. However this trend will likely shift, since the proposed rules by BCBS\/IOSCO has been recently published by global regulators. Beginning by the end of 2015 and phased in over several years following  compulsory margin requirements for non-cleared derivatives covering Variation Margin (VM) are anticipated to  be mandated in both the U.S. and Europe by the following regulatory bodies: ESMA (European Securities Markets Authority), the Federal Reserve and CFTC (U.S. Commodity Futures Trading Commission). Between existing regulations and these newly established requirements, with respect to margining practices buy-side firms should expect:<\/p>\n

    \n
  1. For cleared derivatives there will be a requirement to deposit initial margin and adhere to daily variation margin calls with no minimum transfer amounts; <\/li>\n
  2. For bilateral swaps there will likely be a need for both initial and variation margin, with variation margin calls subject to minimum transfer amounts on a periodic basis;<\/li>\n
  3. Satisfaction of margin calls needing to be made by exposure currency rather than agreement currency, with significant  haircuts if margin is satisfied with assets with a currency basis different from the exposure currency and\/or with less liquid assets; and <\/li>\n
  4. Tightening definitions of eligible collateral with a tendency towards restricting variation margin to cash, widening eligible collateral restrictions for initial margin, and large haircuts for assets deemed less liquid – potentially creating a liquidity crunch if optimal or more appropriate assets are not available for delivery.                                        <\/li>\n<\/ol>\n

    These four areas have the potential to stress a firm’s ability to provide operational support for asset allocation and hedging strategies where derivatives represent high notional amounts and a significant number of transactions.  There are a number of processes and procedures that need to be enacted in order to support derivatives trading in compliance with existing and proposed regulations.<\/p>\n

    Operational Impact<\/h3>\n

    There are a number of operational areas impacted:<\/p>\n