Citi has launched a new tool to help buy side firms cope with the Uncleared Margin Rules (UMR) that are due to come into effect over the next two years.
Financial institutions such as asset managers, pension funds and insurance companies are scheduled to come into scope of the regulations based on volume thresholds that take effect on September 1 of 2020 and 2021. In order to comply with the regulations, many firms that didn’t have to post initial margin before will have to establish new collateral management capabilities, including the ability to calculate initial margin.
The Regulatory Initial Margin Calculation Service launched by Citi today helps firms as they progress from needing to estimate their future initial margin levels before the deadlines, to monitoring initial margin levels once the thresholds take effect, to operating full daily initial margin calculation and reconciliation. The service leverages the ISDA SIMM model that was created through a partnership with AcadiaSoft, a technology vendor.
“There are several key questions that in-scope firms need to address,” says Diana Shapiro, North America head of collateral management services at Citi. “When will they need to start posting collateral, how much collateral will be required, and how can they optimise collateral and mitigate the cost of compliance? An early and accurate view of the likely initial margin levels will enable clients to plan the scope and scale of work needed to comply with the regulations.”
Citi’s service offers ad hoc estimation, for which no set-up is required, of periodic initial margin calculation based on a regularly supplied trade file. The initial margin calculation can be applied to existing portfolios or to hypothetical portfolios for the purposes of simulating initial margin under different scenarios.
“As firms come into scope of UMR under phases 5 and 6, the additional margin obligations could strain their operational platforms, drain liquidity from their portfolios and increase collateral drag,” says Fergus Pery, global head of collateral management services. “The role of collateral management here goes beyond just another regulatory readiness exercise. We see this as an opportunity to help our clients understand the growing impact of collateral management on investment performance and to create value by implementing sound practices today.”