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IHS Markit and OpenGamma join forces on UMR compliance

Collaboration between IHS Markit and OpenGamma aims to provide end-to-end support to clients for UMR compliance.

Margin optimisation specialist OpenGamma and analytics provider IHS Markit have confirmed a new partnership to support compliance for mutual clients with margin rules.  

The deal will see OpenGamma’s pre-trade margin analytics combined with IHS Markit’s post-trade derivatives calculation service, to provide end-to-end support for a range of entities which both firms mutual clients will have access to.

“Our forward-looking solution, powered by highly-accurate margin analytics and calculations, can effectively streamline margin workflows and OTC derivatives trading to enable cost mitigation,” claimed Hiroshi Tanase, executive director at IHS Markit.

The partnership was formed following a one-year delay to phases five and six of the uncleared margin rules (UMR). The final two UMR phases will now go live in September 2021 and September 2022. Both firms agreed that as numerous institutional asset managers will come into scope of the rules as they are introduced, demand for tools that help reduce the cost of posting margin will increase.

“Asset managers are currently working out how to best use the time afforded to them by the UMR delay,” said Peter Rippon, CEO of OpenGamma. “IHS Markit is one of the very few firms that has the proven pedigree in this area. Together, our combined solution offers full coverage for both cleared and bilateral derivatives.”


DRW adopt OpenGamma’s analytics to drive efficiency and support treasury function

OpenGamma, a financial technology company, today announced that DRW, a major global principal trading firm, will use OpenGamma’s analytics in its treasury function to manage derivatives margin.

DRW was attracted to OpenGamma’s leading software-as-a-service (SaaS) solution as it seeks to expand its treasury capabilities in response to regulations such as Uncleared Margin Rules (UMR). 

UMR regulation was set in motion at the 2009 G20 meeting following the global financial crisis and requires firms using over-the-counter derivatives to post margin on those transactions. These regulations require any trading strategy that uses leverage to optimize and be efficient with its use of collateral. OpenGamma’s solution will enable DRW to improve treasury processes by regularly evaluating alternative ways to put on new trades across both clearing houses and bilateral counterparties.

“We’ve been looking at technology solutions that can help us to adapt the processes we use for financing and cash management,” says Mark Wendland, Global Head of Treasury at DRW. “OpenGamma’s solution gives us unique coverage for the products we trade, and it will add efficiency to our trading operations.”

OpenGamma CEO Peter Rippon added, “We are incredibly proud to have been selected by DRW, a company with a visionary approach to driving efficiency in their operations.”

Blog, Insights

How to use option value to optimise your margin in current market conditions

We have had a number of clients contacting us lately asking for help in understanding option value (or net liquidating value) and what impact it has on their margin. What has become clear is that the volatility being caused by the coronavirus pandemic is causing large changes in option value, and consequently sudden changes in margin requirements. Market participants know that margin is affected by the parameter changes that the CCPs are making on an almost daily basis, but the impact of option value is less well understood.


What’s the issue?

Any portfolio that includes option positions may have option value that can be used to reduce the margin payable. The more of this credit that is used the greater the margin efficiency that can be achieved.

The way in which this margin offsetting works isn’t well understood. And the increased market volatility means that options that were previously out of the money will become in the money (and hence have option value) and vice versa.

This change in option value could also mean that a lot of firms are missing out on what is basically ‘margin free’ risk: the availability of a credit option value could  mean that additional positions can be opened without paying any additional margin.


What is meant by option value, how does it impact margin and how can its use be optimised?

For premium paid up front options, the option value is included in the overall margin calculation. credit option value can be used to offset initial margin, whereas debit option value must be covered by collateral in the same way as initial margin.

Before looking at how option value in your portfolio can impact margin, and how the use of it can be optimised, it’s probably best to define what we’re talking about. There are a few different terms that you may have heard:

  • Option Value
  • Equity Value
  • Net Liquidating Value
  • Premium Value.

These are all just different names for the same thing: the current value of any options where premium is paid up front in your portfolio. What is important here is that it isn’t all options. Some options are what is called “futures style”, with daily profit and loss being paid on them, and these do not have option value. As an example ICE Financial options are all futures style.

The calculation of the option value, or Net Liquidating Value (NLV) as it is called by the majority of exchanges, is a simple one:

NLV = position * contract size * price

Where position is the number of lots of the option held, with position being positive for a long position and negative for a short position. So, if you have a long position you will have credit NLV and if you have a short position you will have debit NLV.

Not all options are premium paid up front. A number of options are futures style, with Realised Variation Margin being paid on a daily basis. The options that fall into each category at the major CCPs are as follows:

CME – all premium paid up front (CME, CBOT, COMEX, NYMEX)
ICE Clear Europe
Financials (ex LIFFE) – futures style 
Equities (ex LTOM) – premium paid up front 
Commodities (ex LIFFE Commodities/FOX) – futures style 
Energy (ex IPE) – futures style for majority, but premium paid up front for those which are copies of CME contracts 
Fixed Income (PFI01 Liquidation Group Split) – futures style 
Equities (PEQ01) – premium paid up front 
Premium paid up front
JSCC (for OSE)
JGB – futures style
Equity and Equity Index- premium paid up front
In general, US options are premium paid up front. Other countries tend to follow the rule that equity and equity index options are premium paid up front, whilst all other options are futures style.


What is the impact on margin?

When most people talk about margin they are thinking of initial margin. This is the calculation that estimates potential future losses, using algorithms like SPAN or Prisma. But it is actually the net margin that has to be collateralised:

Net Margin = Initial Margin + NLV

It is important to get the signs correct in this calculation. Initial margin is always a debit, so if you have debit NLV then it will increase your net margin, but if you have credit NLV it will reduce your net margin.

There are limits on the initial margin that can be offset by credit NLV. Generally the use is restricted to the same group of products. So for example, if you have an excess credit on an equity position with a CCP you may find that you still have to pay the full margin on your fixed income position with the same CCP.

As can be seen above, if you have credit NLV then you can reduce your net margin. This means that the option value in your long option positions can be used to reduce the amount of margin that you pay. Not forgetting though that if you have a lot of short option positions they will increase your net margin.

And the value of the credit that you get from the NLV can be significant. In a portfolio consisting of a large proportion of long options, the credit NLV can often be larger than the initial margin, meaning it is completely offset, and your margin requirement will be zero.


How is the current market volatility changing this?

Many market participants will be holding option strategies where they expect the options to be out of the money. But with big swings in the underlying futures price, they may find that these options are suddenly in the money. And this means that they will now have option value that will impact the net margin.

If these option strategies have long option positions then this will be a plus, as the overall margin requirement will be reduced by this option value – maybe offsetting some of the margin increase resulting from recent parameter changes.

However, if the options are short then the net margin will increase by the option value. This can lead to a large increase in the margin requirement for the impacted firm, and may even cause liquidity issues.

Similarly, if a firm holds long option positions that were in the money, and offsetting their initial margin, they may find a sudden increase in their margin requirement if these options move out of the money.

Firms need to be aware of the impact that changes in option value can have on their margin requirement, especially in current market conditions where there can be significant jumps.


What about optimisation?

Unfortunately, you don’t benefit if your credit NLV more than offsets your initial margin. CCPs don’t give you any money back. It’s a case of ‘use it or lose it’. Consequently, you might like to consider trading some additional futures. The initial margin could be completely offset by the available credit NLV, meaning that your net margin could still be zero.

In order to benefit from this you need to understand the breakdown of your margin and the spare capacity you may have in your portfolio. But watch out – with the markets this volatile that option value could soon disappear.


So what have we learnt?

First of all, from the questions we have received, it is clear that the impact of option value on margin requirement is not generally understood. The current market volatility, which has led to big changes in option value has clearly highlighted this issue.

Once you understand how option value is used by CCPs, then it is easier to see how it is potentially another tool in optimising margin, and hence returns. The only problem is that, in the current market, the option value that you have one day could easily all have disappeared by the next.


OTC Derivatives Briefings across Europe

OpenGamma, Eurex Clearing, Clearstream, and Tradeweb would like to invite you to our European Derivatives Briefings: Balancing Regulatory Obligations with Efficiency Strategies

At the briefing, our experts will lay out plans buy-side firms can adopt to achieve greater capital and operational efficiency when complying with upcoming OTC regulatory obligations for clearing and collateral management. The experts will present and share their strategies across: Trading and execution, CCP clearing and collateral management and their cost implications for both cleared and uncleared derivatives. The event will specifically review the following:

•    Electronic trading – Achieving optimal liquidity and best execution via OTC derivatives trading platforms

•    CCP clearing – Key considerations to achieve efficiencies in clearing and minimise impacts of UMR

•    Collateral management – How to address complexities and optimize collateral workflows for cleared and uncleared derivatives

•    Cost optimisation – How analytics can improve trading decisions and manage costs

Book some time with one of our experts at any of the locations by clicking the button below.

Dates and locations
Amsterdam 4. September 2019 11.30-13.30 Event taken place
Stockholm 5. September 2019 11.00-13.00 Event taken place
Milano 3. October 2019 11.30-13.30 Event taken place
Paris 6. November 2019 11.30-13.30 Register here
Frankfurt 13. November 2019 11.30-13.30 Register here
London 21. November 2019 16.00-18.00 Register here
Dublin 27. November 2019 16.00-18.00 Register here
Luxembourg tbd Registration opens soon
Infographics, Insights

Infographic: Broker Scorecarding in 2019

Broker scorecarding is still a fairly new practice, and many businesses are still unsure how often to perform it, why it’s worth doing, and what results it can bring.

We reached out to our buy-side clients to learn more about the broker review landscape this year, to put together our interactive report: ‘Broker scorecarding in 2019’.

Our infographic highlights the key takeaways of that report, so that you can better see where your firm fits in within the review landscape.

Insights, Research and reports

Interactive survey: Broker scorecarding in 2019

Comparing your brokers and their execution strategies can be incredibly insightful – and of immeasurable value to your business.

We reached out to our buy-side clients to learn more about the broker review landscape in 2019. Over two months we carried out face-to-face interviews with professionals from 22 buy-side firms, with a particular focus on why firms carry out broker reviews, current processes, challenges faced and plans for enhancement.

Our latest report highlights the key results and trends from our surveys – to give you a better gauge of where you fit into the market, and what else you can be doing to benefit your business that you may not have already considered.

What you can learn:

  • Understand the drivers behind broker reviews.
  • Learn how often other firms carry out reviews.
  • Understand how – and with who – firms perform their reviews.
  • Gain insight into what goes into reviews and how they work.
  • Find out what the future holds for reviews: how many firms plan on enhancing and how.

Download our interactive guide by filling in the form on the right >>


Fixed Income Leaders Summit

OpenGamma is sponsoring and holding a workshop at this year’s Fixed Income Leaders Summit.

Attracting over 1,000 leaders in the fixed income space, including key regulators, buy-side, sell-side and trading platforms, Fixed Income Leaders is a conference you don’t want to miss. You can find out more and read the full agenda here >

Meet our team and attend our workshop to find out: 

  • How to prepare for phase 5 and 6 of UMR
  • How to calculate SIMM
  • What other fixed income firms are doing now
  • Why the world’s largest hedge funds and asset managers are using analytics to lower their margin.

7th – 9th October 2019



Plaça de Willy Brandt, 11-14,

08019 Barcelona, Spain

Get in touch to book some time with one of our experts by clicking the button above ^

Insights, Research and reports

Poor broker performance reviews leaving fund managers in the dark

Originally published at CityAM


Fund managers may not know how much money they are spending with brokers thanks to a failure to properly review the relationships, a new study has found.

Despite the majority having procedures to review broker relationships in place, only 11 per cent of fund managers actually assess how all their brokers are performing, according to a report by analytics fintech OpenGamma.

The vast majority of the 22 investment management firms surveyed (86 per cent) had a broker review process in place, but there was no industry consensus around how often the reviews should be carried out.

Almost a third (31.8 per cent) of firms said they held reviews at “mixed/multiple” during the year, while just over a fifth (22.8 per cent) held them “semi-annually”.

The majority of the are reliant on manual processes to review broker relationships, with only 21 per cent using live data in the review process.

The biggest challenge when conducting reviews was gathering data and calculating revenue, the report found. Over half – 53 per cent – of firms said they found carrying out broker reviews “very time consuming”

 “Having a process for assessing how brokers are performing is without question very valuable, but only when carried out,” said Opengamma chief operating officer Maxime Jeanniard du Dot.

“While regulations will be a big driver in reviewing broker performance, fund managers also have a strict fiduciary responsibility to investors,” he continued.

“On top of this, as the geopolitical landscape begins to take shape over the coming months, it is clear that fund managers will need to gain a new level of insight to understand the best brokers to do business with.”

Insights, Research and reports

2019 UMR Impact Analysis Research Report

This research report summarises the findings from OpenGamma’s ‘Uncleared Margin Rules (UMR) impact analysis’ that we performed on behalf of 15 clients over the last 6 months.

The results are anonymised and aggregated by firm type, but help to quantify the margin impact of SIMM on the industry.

The report also outlines the steps firms can take to minimise the impact of SIMM, such as voluntary clearing and other optimisation approaches.

Download the full report to read:

  • Full UMR impact analysis for 15 firms, including 6 hedge funds, 6 asset managers and 3 pensions funds.
  • How SIMM and Cleared margin requirements impact funding costs.
  • How to optimise margin under UMR, including:
    • The regulatory schedule approach
    • ‘Cherry-picked’ backloading
    • Synthetic risk moves
    • Remaining below the $50m threshold.

We hope you find the research useful. If you have any questions or want to find out more contact us here >


OpenGamma, Eurex, Clearstream and Tradeweb European Roadshows

OpenGamma ran the first of our European roadshows this week, alongside Eurex, Clearstream and Tradeweb. The events, hosted by ABN Amro Clearing Bank in Amsterdam on Wednesday and Danske Bank in Stockholm on Thursday, brought together industry experts to present and discuss on key topics surrounding OTC clearing & Collateral management.

Joe Midmore OpenGamma
OpenGamma CCO, Joe Midmore, discusses capital efficiency


OpenGamma CCO, Joe Midmore, spoke specifically on capital efficiency in the investment process. Calling upon OpenGamma’s decade of experience developing margin replication and optimisation solutions, he covered the causes and consequences of capital inefficiency, the additional complexity that UMR has introduced and finally went into actionable optimisation techniques firms can use to improve their capital efficiency.

On the success of the roadshows, he said “Working on events like this with the teams from Eurex, Clearstream and Tradeweb has been great, and we’re really pleased that we’ve been able to provide so much value for the attendees. There is a lot of consideration ahead for newly in-scope counterparties and having representatives available from firms like those mentioned can provide clarity on achieving compliance and maintaining efficiency”.


Image from iOS (3)
Representatives from OpenGamma, Eurex, Clearstream and Tradeweb hold a panel discussion


He continued to press the importance of capital efficiency for firms, especially in the face of oncoming regulation “Without a doubt, firms will feel the sting of capital inefficiency if they’re unable to prepare adequately before 2021. However, there are strategic and technological options available that will mitigate the impact of new margining requirements and, at OpenGamma, we’re happy to discuss them at any opportunity”.


The events saw over 60 attend in Amsterdam and over 40 in Stockholm, they continue throughout the year across Europe – find out where and how to register here 
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