Our latest research shows asset managers pulled into phases IV and V of the Uncleared Margin Rules (UMR) will be able to save up to 53% in initial margin when clearing compared to uncleared margining.
UMR which, among other requirements, mandates margining rules for trades that are not cleared by a central counterparty (CCP) has caused great collateral inefficiencies for many in-scope firms. For asset managers with portfolios above €750bn in notional, clearing a greater volume of OTC trades frees up potentially millions of dollars worth of assets to put to use elsewhere.
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The findings come as the industry continues to prepare itself to post an eye watering $2 trillion more margin as a result of the rules, the final phase of which has been pushed out until 2021. This means that thousands of asset managers, that have previously never had to post margin, will have much needed additional time to get their operational houses in order.
In response to the research our CEO Peter Rippon said “The overarching goal of UMR is to strongly incentivise asset managers to stop trading bilateral uncleared derivatives, and shift towards central clearing.”
“Unfortunately, it’s not as simple as just deciding to clear, firms then need to decide where to clear. A derivative may be eligible to clear at numerous venues, but an asset manager then needs to factor in liquidity and whether they have an existing position, not to mention any pricing discrepancies between the clearing houses.”
He concluded: “The trouble is, at a time when investors are putting fund performance under the spotlight following Neil Woodford’s woes, the last thing asset managers need is to be restricted from delivering strong returns. This problem can be solved, which is why we are seeing more firms carefully considering the differences in the margin calculated, and level of margin that will be required for UMR.”
Interested in how this saving can be achieved in greater depth? Take a look at our blog on How optimisation can save you up to 80% on the cost of margin.