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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.”

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Tradeweb and OpenGamma collaborate on Margin Optimisation integration

Tradeweb Markets Inc. (Nasdaq: TW), a leading global operator of electronic marketplaces for rates, credit, equities and money markets, announced its collaboration with leading margin optimisation provider OpenGamma, to offer clients best-of-breed vendor access to life-cycle cost analytics, including initial margin, collateral, clearing fees, brokerage and trading costs.

Tradeweb’s integration of margin optimisation analytics with its interest rate derivatives platform will seamlessly provide institutional investors with pre-trade initial margin calculations, as well as real-time insight into trade execution options, such as optimal clearing venue and clearing broker selections. As a result, Tradeweb clients will be better able to minimize trade life-time costs and prove best execution.

 

“Tradeweb continues to connect markets, this time by bringing together our award-winning rates derivatives marketplace and pre-trade analytics and margin calculation specialists,” said Enrico Bruni, head of Europe and Asia business at Tradeweb. “Our strategic alliance with(…)OpenGamma will equip investors with flexibility and choice, when selecting the best way to satisfy their margin and best execution requirements.”

 

Following the 2008 financial crisis, global regulators introduced the phased implementation of margin requirements for non-centrally cleared derivatives, most widely known as Uncleared Margin Rules (UMR). The final two phases of UMR in September 2020 and 2021 will bring into scope a significant number of new counterparties, creating increased demand for tools that help evaluate the true life-time cost of trading.

 

“Our collaboration with one of the leading marketplaces for interest rate derivatives is a major step in providing capital efficiency to the buy-side,” said Peter Rippon, CEO of OpenGamma. “By adding our renowned margin analytics onto Tradeweb’s execution platform, firms will have access to unique CCP optimisation models that help them address the funding challenges created by new regulation.”

 

Tradeweb’s integration of margin analytics within the execution workflow will significantly enhance the trading experience for buy-side firms, ultimately helping them make smarter investment decisions. Once clients have onboarded with the vendor of their choice, they will be able to check the margin impact of interest rate swap trades on their portfolios pre-trade.

 

“The ability to connect to margin optimisation solutions on Tradeweb will allow us to further improve managing costs efficiently across the trade life-cycle, a key component of our investment process,” said Christoph Hock, head of multi-asset trading at Union Investment. “We look forward to using this innovative solution, which will help us ensure a well-informed, cost-efficient, and regulatory compliant trading workflow ahead of key industry reforms.”

 

Since 2005, Tradeweb’s interest rate derivatives platform has been providing swaps traders with flexible, efficient solutions that help them execute their trading strategies, while navigating the evolving regulatory environment. Last month, Tradeweb announced the launch of multi-asset packages trading on its derivatives platform, streamlining the simultaneous execution of interest rate swaps, inflation swaps and government bonds in a single transaction.

 

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PRESS RELEASE: OpenGamma provides derivatives optimisation for Danish Pension Funds

ATP and PFA, Denmark’s two largest pension and social security providers have appointed OpenGamma, a leading margin software vendor, to provide cleared and uncleared derivatives analytics ahead of the final implementation phases of the BCBS/IOSCO bilateral margin rules in 2020 and 2021.

OpenGamma’s appointment comes at a pivotal time for the derivatives industry with voluntary OTC clearing on the increase in anticipation of the funding challenges non-centrally cleared derivatives margin requirements are set to have over the next 22 months.

The margin specialist provides pre- and post-trade capital efficiency tools for investment and treasury personnel to maximise trading efficiency at various stages through the trade cycle.

Commenting on the appointment, Lars Dreier, Senior Portfolio Manager at ATP points to the need for derivatives optimisation:

“This new solution provides us with the ability to proactively manage our derivatives book as efficiently as possible”

while Thomas Kolling, Senior Portfolio Manager at PFA states that:

“This is a natural add-on to the partnership we have had with OpenGamma on cleared derivatives for almost two years. Margin analytics is becoming more and more important for our business and OpenGamma provides the necessary tools for us to do these analytics.”

The timely appointment aligns with the recent buy-side trend towards proactively establishing funding, liquidity and optimisation capabilities across cleared and uncleared derivatives portfolios.

OpenGamma’s Chief Commercial Officer, Joe Midmore, highlights the significance of the appointments,

“We are delighted to have been selected by ATP and PFA to support their common objective to reduce trading costs and, ultimately, deliver value for Danish pensioners. These are transformational times for buy-side participants trading OTC derivatives and our recent traction in the Nordic market reflects the growing need for innovative margin analytics that meet the needs of large, sophisticated pension schemes and other asset owners.”
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PRESS RELEASE: PIMCO adopts OpenGamma analytics to reduce margin costs for derivatives

OpenGamma, a financial technology company, today announced that PIMCO, a leading global investment management firm, is using OpenGamma’s analytics as part of its operational processes to optimize derivatives margin for its clients.

With OpenGamma’s leading software-as-a-service (SaaS) solution, PIMCO is able to reduce margin financing costs for its clients for their derivatives by evaluating all available clearing options across global exchanges and clearing houses.

“Fixed income asset managers need to adapt the way they trade derivatives under new regulations like uncleared margin rules” says Josh Ratner, Executive Vice President, Head of Americas Operations of PIMCO.

“With this in mind, we’re constantly on the lookout for the right technology to drive efficiencies, and so are very excited to be partnering with OpenGamma. Their solution will form an important part of our overall approach to delivering operational efficiencies for derivatives for our clients.”

OpenGamma CEO Peter Rippon added: “We are proud to be working with PIMCO to deliver operational efficiencies for their derivatives trading. We’re extremely eager to help PIMCO build upon their current status as a leader in their field.”

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MEDIA ALERT: Asset Managers could avoid tying up collateral under new uncleared margin rules

The majority of asset managers dragged into new uncleared margin requirements over the next two years could avoid tying up capital altogether, but still play by the rules, according to recent research from OpenGamma.

The new requirements force firms with portfolios above a certain aggregate average notional amount (AANA) to exchange initial margin on uncleared derivatives. However, the findings show that out of 300 firms pulled into phase V of the global uncleared margin requirements, 74% of asset managers could optimise their portfolios to trade certain derivatives ‘free of margin’.

Although the regulation makes the cost of trading derivatives more expensive, it also gives market participants an opportunity to reduce margin requirements. Much of this centres around the $50m threshold set by the regulator per counterparty under each phase of the rules. The threshold must be exceeded before the remaining IM needs to be exchanged, meaning asset managers who stay below the threshold or a fraction above it, will reduce the amount of margin they need to post. This reduces the amount of upfront collateral that needs to be posted – freeing up resources to be used elsewhere. 

Commenting on the findings, Peter Rippon, CEO of OpenGamma said: “No investor wants their managers tying up unnecessary capital that could be used for generating returns. The $50m threshold was created by regulators in an attempt to avoid unnecessary operational costs on smaller firms and asset managers should be using it to their advantage. With the right analytics, our study shows that the majority of asset managers pulled into the next phases can identify which trades to move not only to make better use of the threshold, but to significantly reduce the amount of margin they post or eliminate it all together.

Rippon concluded: “There is a deep uncertainty from the industry centred around how to prepare for the new rules effectively. But with the right foresight and planning, asset managers can take control now and avoid stumbling through the process later.” 

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OpenGamma announces completion of SOC 2 Type 1 Certification

OpenGamma is proud to announce successful completion of the Service Organisation Controls (SOC) 2 Type 1 certification. Following a period of extensive auditing we have been certified by Ernst & Young (EY) for our controls relating to security, highlighting our commitment to protecting customer data.

Developed by the American Institute of Certified Public Accountants (AICPA), SOC 2 is the standard for security compliance by hosted service providers. Firms must demonstrate their ability to design and implement controls, policies, procedures and practices to protect the interests of their clients.

Our CTO, Jon Senior, has said: “This certification marks a significant step towards achieving our long-term goals. Managing customer data has always been a top priority and this independent validation demonstrates just how seriously we take handling our clients’ sensitive position files.”

Beyond security, SOC 2 compliance provides customers with an assurance of high levels of organisational maturity, from the internal processes around customer commitments to the professional development of employees. OpenGamma is committed to performing further SOC 2 examinations in future years, providing ongoing confidence in our ability to maintain and expand on these high standards.

OpenGamma’s SOC 2 report is available to existing and prospective customers on request under a non-disclosure agreement. Please contact compliance@opengamma.com for more information.  

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What’s the impact of the one-year extension to the Uncleared Margin Requirements?

So, the expected announcement was made and the Basel Committee and IOSCO announced a one year extension to UMR Phase V – except, of course, it isn’t as simple as that. What we now have, in effect, is a Phase Va and a Phase Vb – and even more confusion over when people are going to be caught by the rules and what they need to do about it.

 

What exactly are the changes?

The headline is that Phase V where firms with an aggregate average notional amount (AANA) of greater than €8 billion will need to pay Initial Margin on non-centrally cleared derivatives has been moved back a year to 1 September 2021. But what they have additionally done is introduce an interim threshold of €50 billion AANA, which will come into force on 1 September 2020 (the original date for Phase V).

 

“So, although some firms have got a stay of execution until 2021, others will still need to meet the original date.”

 

What is the impact?

The obvious answer to this question is a number of firms can delay looking at UMR. However, given the AANA thresholds, the majority of firms will have to continue to run these calculations. Between the €750 billion threshold for Phase IV and the €8 billion for Phase V, it was relatively easy to determine if you were caught by Phase IV or not.

As a result of the extension, there are a lot of firms who could be on the border of the new €50 billion threshold and will need to complete this task to check if they have the extra year. Click To Tweet

Here at OpenGamma, our experience has been that there is still a lot of ambiguity around how to treat certain products in the industry, and that calculating AANA alone is a difficult task, before you even get to Initial Margin. As a result, even if you are likely to fall below the new threshold, it could be a good idea to carry on with this work making lots of notes as you go so that it is an easier task if it has to be repeated next year.

 

If I’m happy that I’m below the new €50 billion threshold can I relax?

You’d like to think that the answer to this question would be ‘yes’. But the reason the Basel Committee and IOSCO have had to introduce this delay is that so many firms are struggling to meet the original deadline. Even their attempt in March to make the burden easier allowing any entity where the bilateral Initial Margin requirement fell below the €50 million threshold to not complete the necessary documentation and operational set up did not allow the original timescales to be met…well, not in a ‘smooth and orderly’ fashion anyway.

 

“Firms should really be using this extension as an opportunity to get things right.”

 

In their press release the Basel Committee and IOSCO stated that they ‘expect that covered entities will act diligently to comply with the requirements by this revised timeline and strongly encourage market participants to make all relevant arrangements on a timely basis’. Meaning, they’re not expecting anyone to sit back and wait until next year before they get going again.

 

So, what should I be doing now?

The answer is; carry on preparing for the final phase because it will creep up on you sooner than expected. This delay just means that it is less likely that you will be rushed and end up with a sub-optimal implementation. Get those custodial agreements re-papered, work out whether you are using SIMM or Grid. If you decide to use SIMM, choose how you’re going to calculate the necessary sensitivities and don’t forget the day-to-day reconciliation.

And what about that €50 million threshold? Not setting up the infrastructure to post regulatory Initial Margin is fine if you never exceed the threshold (although most banks are likely to expect this to be in place even if it is never used)…but you will need a way of optimizing your trading and monitoring your margin to make sure that you stay below this level.

Some firms dragged into Phase V have only recently realised that they will have to post hundreds of millions in Initial Margin for the first time. So, if nothing else, this delay provides some much needed time to put detailed plans in place in order to trade more efficiently. In the months ahead, expect to see more and more asset managers affected by the rules moving away from trading bilateral uncleared derivatives, and shifting towards central clearing.

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Derivative trading costs to escalate amid market volatility fears

Derivatives trading costs could double as markets brace themselves for increased bouts of volatility, according to our new research.

The findings show that during times of market stress, requirements to post upfront cash can jump by half on average, with initial margin rising by as much as 94%. This huge additional cost, calculated through stress testing Fixed Income futures traded on US exchanges, will be tough to absorb for fund managers under intense pressure from investors to deliver stronger returns.

With continued global trade tensions, rising US interest rates and growing debt, fund managers will have to navigate themselves through unpredictable market movements in the months ahead.

This uncertainty adds mounting pressure to those firms trading euro-bond futures. Without an effective hedging strategy in place, the analysis also shows a rise of over two thirds in margin required for euro-bond futures.

In times of market stress initial margin can rise as much as 94% Click To Tweet

Commenting on the findings, our CEO, Peter Rippon, said: “With Brexit looming and ongoing Trump trade wars with China, the next few months present a daunting prospect for fund managers trying to combat inevitable volatility. This is why, during these periods of market turbulence, understanding which positions are likely to incur an increase in margin requirements is imperative in order to reduce costs. Using an efficient hedging overlay firms can soften the spike if the right strategy is implemented.

“No fund manager wants to be posting more margin than they need to. Understanding how to reduce these costs will be key for firms maintaining liquidity for investors within their fund, as they may need sufficient cash to buffer against unpredictable market conditions.” Rippon concluded.

You can download the full research here >

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We’ve raised $10 million of growth funding led by Dawn Capital!

We have raised $10 million in funding led by early-stage fintech and B2B software venture capital firm Dawn. The funding round includes participation from our existing investors Accel, CME Ventures and ex-SunGuard CEO and fintech angel investor Cristóbal Conde.

The funding follows a period of rapid growth – we experienced a 300%  increase in recurring revenue in the last 12 months, as well as a geographical expansion across the globe – doubling both our customer base and team.

The new funding will enable us to accelerate our growth further and expand our teams in London, New York and Singapore. It will also allow us to enhance our award-winning product portfolio by launching new products in the collateral and treasury space to complement our existing margin product.

Josh Bell, General Partner at Dawn Capital, said: “As regulation continues to drive up the cost of trading derivatives, efficient use of capital has become essential for financial institutions to maintain their business models. Top-tier global investment banks and asset managers are all turning to OpenGamma for support, attracted by the depth, coverage and speed of deployment of OpenGamma’s analytics platform. We are delighted to be partnering with Peter and his team as OpenGamma continues to expand its product proposition and geographic footprint.”

Bruce Golden, Partner at Accel, added: “Since our original seed investment, OpenGamma has evolved into one of the most sophisticated SaaS businesses focused on making the derivatives market safer and more efficient. Their rapid growth underscores their customers’ reliance on them as a key partner in driving capital efficiency and meeting regulatory obligations. We are delighted to welcome Dawn Capital as our newest syndicate partner, as we support the OpenGamma team in solidifying their position as the global leader.”

Peter Rippon, our CEO, explained: “Regulation has created new opportunities for firms like OpenGamma. We work with key market infrastructure providers, including CME Group, Eurex, JSCC as well as top tier banks, to ensure we have access to the models needed to solve a key industry problem: the rising cost of trading derivatives.”

“We are excited to be working with Dawn Capital, as we can draw on their expertise in B2B fintech to further accelerate our growth.”

You can now instantly view both our buy-side and sell-side demos here > 

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We’ve been shortlisted for Trading Tech Insights Awards – North America!

We’re happy to announce we’ve been shortlisted for ‘Best Trading and Risk Management System for Post Trade’ for the Trading Tech Insights Awards – North America.

OpenGamma Analytics assist firms with margin, portfolio finance and cash management. Our applications provide insight on broker dealer capital requirements, liquidity reserve optimisation and risk-based margin netting agreements to enable firms to stay competitive by maintaining their leverage.

Our CEO, Peter Rippon, explains: “It’s great for OpenGamma to get this kind of recognition in a region we only officially opened an office in November. This year we are growing our North American team and customer base rapidly as the next phase of Uncleared Margin Rules approaches this September.

“The introduction of increasing regulation needn’t massive blow to firms. An effective analytics solution can help hedge funds navigate through and reduce unnecessary costs; OpenGamma’s nomination just goes to show the level of success our clients are having from ours.”

The winners are voted for by end-users at financial institutions, with the awards taking place on 11 June.

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