Last week I attended the ISDA regional conference: The Future is Now: Implementing the Margin Rules for Non-Cleared Swaps in London and I wanted to share a few of my key thoughts and takeaways from the event.
The agenda was 100% focused on the margin rules for the non-cleared swaps. While the industry has long known these rules were coming, they were less pressing than those rules relating to mandatory OTC clearing and mandatory electronic trading. Clearly, that has changed.
- The bilateral IM rules catch only the largest entities at present and, whilst there was some 11th hour signing of documents, there were no major hiccups. Having everyone use the ISDA SIMM calculation has removed the prospect of disputed IM calls arising from using different margin models.
- The biggest pain point is yet to come. When mandatory VM rules start globally in March for all financial entities, there will be a BANG. And it will be a very BIG BANG indeed. One estimate is that 200,000 collateral agreements will need to be altered or have new agreements created. That’s a heck of a lot of work for the lawyers.
- It should be remembered that the rules apply for new trades only so any extra costs and headaches will slowly creep in over time.
- Expect increased standardisation in collateral agreements. Bespoke (re)negotiations will cause delay and add to costs. There just simply isn’t enough time to get the industry ready without lots of entities agreeing a set of standardised terms.
- The discussion has moved on from the theoretical to the practical. This was evident by the fact ISDA rightly allowed a couple of the panel to be mini-sales pitches for firms to demonstrate how they can help solve the headaches.
- The solutions seemed to come from existing vendors selling their existing solutions, or from new providers aiming at the largest users. Maybe that was due to the composition of the audience at the event but it seems like we’re one of the few firms with a model aimed at serving the wider market.
2017 is going to be a busy year!