The Uncleared Margin Rules (UMR) has meant that the industry has got closer to regulators and brought those previously considered competitors closer together, says one panellist at the Securities Finance Technology Symposium.
Speaking at the session, ‘Drilling down into margin reform and UMR’, the panellist adds that this is particularly true in terms of technology.
The panel included Katie Emerson, executive director and head of agency lending and collateral management sales, EMEA at J.P. Morgan; Nick Short, chief operating officer of HQLAx; John Pucciarelli, head of industry and strategy at Acadia; and Mark Jennis, head of strategy and partnerships at Transcend.
Discussions began around the go-live of phase 5 on 1 September, which was agreed to have not presented too many surprises as the year delay from the COVID-19 pandemic, as well as lessons learned from previous phases, considerably helped firms take the time to get everything in order.
However, another panellist notes that as a collateral manager and tri-party agent, they observed that a lot of clients were working to the deadline for phase 5 and had not fully effectively taken advantage of the delay.
Challenges in the implementation of phase 5 for buy-side organisations included the oversight and group nature of companies, which made some projects difficult to navigate and execute on.
In addition, legal negotiations between clients and counterparties posed a more significant challenge than was anticipated, particularly concerning negotiations around eligibility.
Looking to phase 6, panel moderator Shaun Murray, CEO of MarginReform, estimates that this is due to bring approximately 800 firms in-scope.
One panellist predicts that phase 6 will be just as hard or harder than phase 5, noting that the industry will have a much more comprehensive understanding of the situation once firms have disclosed whether they are in-scope.
“The message is and always has been to disclose as early as possible,” they advise.
Another panellist adds that phase 6 of UMR will see different client behaviour, as widening the net of in-scope firms will see the inclusion of less sophisticated organisations. These firms will have “one foot in”, the panellist notes, as they will be captured by the regulation but are likely to remain under the threshold for quite some time.
This will require an extended toolset within the margin analytics space in order to help clients predict margin impact more effectively.
The panellist summarises: “Phase 6 is bigger but the clients are smaller.”
Continuing the focus on phase 6 of UMR, another panellist identified four areas of note, beginning with the heightened importance of buy-side connectivity to tri-party custodians from an optimisation perspective.
In addition, firms receiving collateral will need to validate it to ensure it meets all…
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