InteDelta, a risk management consultancy, has collaborated with BNP Paribas Securities Services, Lombard Risk and TMX Technologies to produce a White Paper titled "Initial Margin: a commentary on issues for centrally cleared and non-centrally cleared business". The White Paper explores the regulatory drivers for the implementation of initial margin and the challenges that institutions face from a systems, organisational and modelling perspective. The White Paper will be released at Fleming Europe 7th annual collateral management forum, Amsterdam.
Excerpt from the White Paper: "The financial crisis revealed major weaknesses in the global financial system, particularly in the interdependence between large financial institutions. A number of regulatory initiatives are in the process of being put in place to reduce the overall counterparty risk in the system. Most significant is the move to central clearing. A key risk-mitigating feature of central clearing is the requirement to post Initial Margin (IM) to Central Clearing Counterparties (CCPs). BCBS IOSCO has published a policy framework recommending the bilateral posting of IM also for transactions not subject to central clearing."
Download the complete White Paper HERE.
The firms that collaborated to produce the White Paper are:
BNP Paribas Securities Services is a wholly-owned banking subsidiary of the BNP Paribas Group and a leading provider of custody, clearing and investment operations solutions. Through Collateral Access, its end-to-end solution, BNP Paribas Securities Services provides buy- and sell-side clients with a full range of services enabling them to mitigate their counterparty risk and to optimise and protect their collateral.
David Beatrix, Business Development - Market and Financing Services, BNP Paribas Securities Services, says: "The new rules and practices in relation to initial margins of cleared and bilateral OTCs impose new requirements to financial institutions, both in terms of liquidity and asset protection. As a leading custodian, we continuously develop solutions to help our clients to meet these challenges, keeping a constant focus on risk management."
InteDelta: a risk management consultancy with a wide range of experience in advising institutions on all aspects of margining and collateral management.
Michael Bryant, Managing Director, says: "The introduction of mandatory initial margin requirements is going to have a major impact on institutions for both cleared and non-cleared business. Institutions will need to respond by adapting their organisational structure and processes and ensuring they have in place adequate systems, methodologies and policies."
Lombard Risk are the creators of COLLINE for front-to-back, cross-product collateral management and margining on a single platform. It enables real-time management of legal documentation, margin calculation, validation, call processing and reporting. COLLINE provides calculation and validation of initial margin requirements for bilateral and cleared models, and offers seamless integration with external initial margin calculation providers, such as Razor Risk which enables 'what-if' scenarios to support pre-clearing trade decision making.
Helen Nicol, Product Director, COLLINE, says: "Since the financial crisis, the need to post initial margin is now of critical importance under the global recommendations governing both cleared and bilateral margin relationships. There has been a significant increase in the requirement for financial institutions to post initial margin, and therefore the ability to calculate your own, and validate your counterparty/clearing house/broker IM requirements has become of paramount importance. COLLINE offers flexible validation and calculation under all models, with seamless integration with external providers, embedded within the margin workflow."
TMX Technologies Razor Risk offers trade and portfolio pricing, risk valuation tools to support initial and variation margining. A powerful risk measurement and management solution that will enable central counterparties, clearing brokers, dealers, traders, banks and asset managers to assess their portfolios of clearable and un-clearable derivatives to ensure margin calculations are meaningful, competitive and appropriate. The tools available within Razor Risk provide real-time capabilities to reconcile margin calls decide which the optimum venue or bilateral counterpart to trade with is and enhance the funding, capital allocation and collateral optimisation decisions needed under the increasingly complex regulatory regimes. By providing various approved methodologies which support both standardised and Internally Approved models, Razor Risk provides independent validation and reconciliation capabilities alongside the full suite of integrated Market Risk, Counterparty Credit Risk and Capital Calculation functions already in use in CCP's, banks, Investment Managers and brokers around the world.
Peter Walsh, Sales Manager, TMX Technology Solutions Razor Risk, says: "Whilst collateral management solutions, custodian and clearing brokers help address a number of the key areas under the new EMIR and Dodd-Frank regulations, the ability to independently calculate margin amounts by trade or portfolios of new or back-loading existing trades, in real-time will provide the 'icing on the cake'. By eliminating significant and costly reconciliation and dispute management costs, through optimising the portfolio bifurcation decision making processes and integrating seamlessly into the Collateral Management and related systems, Razor Risk enables optimised performance and compliance in this complex but vital environment."