When the deadline for regulatory compliance was extended to Q4 2016, many buy-side firms may have gratefully shelved any nascent worries about OTC derivatives clearing.
But the reality for many firms is that preparing for the day-to-day implications of this behemoth is actually business-critical. OTC derivative positions will require regular posting of margin to their clearing brokers. Additional costs and operational overhead will be mounting up as those clearing brokers pass through leverage ratio related balance sheet costs. Fund returns are at-risk and investment decisions complicated by the increased costs of using OTC derivatives under central clearing.
As clearing brokers reduce their service offerings or succumb to the economics of the leverage ratio and direct clearing models find their footing, buy-side firms need to be able to make informed decisions about the use of OTC derivatives to maintain fund returns, optimise their clearing broker / CCP relationships, and maximize the opportunities in moving from a bilateral to centrally cleared world.
The time for action is now. The EMIR clearing mandate is imminent. To avoid getting caught by the next wave of EMIR deadlines, proactive buy-side firms can reap the capital benefits of OTC clearing through:
Increased transparency into the margin charged by their CCPs and/or brokers.
Forecasting of CCP margin requirements in order to manage margin buffers and optimise cost of funding.
Optimisation: choosing where to trade and clear OTC and ETD trades in order to take advantage of cross product margin or netting.
Today we announce our partnership with CloudMargin, the cloud-based collateral and risk management platform, to provide their clients with a single portal to validate clearing house margin calls from their clearing brokers so they can independently validate and understand the margin they are charged by the CCPs. It also provides ‘what-if’ tools to help them optimise their choice of clearing brokers and venues.