Initial Margin Deadlines Looming
With the next phase of the Initial Margin (IM) for uncleared derivatives in progress, increasing numbers of market participants will need to comply over the next 3 years.
So far, only the largest sell-side banks have implemented, but more market participants with less pre-existing infrastructure will be caught by phases 3 (September 2018) through to phase 5 (September 2020).
ISDA have published a helpful factsheet on their website, but behind each of these steps hides a significant effort.
Firms will need to be able to support an ever-increasing amount of documentation in order to continue to operate in OTC derivatives. Previously a single Master agreement and Credit Support Annex (CSA) was sufficient, with little specification on what should constitute eligible collateral, with initial margin (previously independent amounts) being entirely optional.
Explosion in Document Volumes
With the introduction of Variation Margin (VM) CSAs last year and Initial Margin coming in, for a single counterparty, market participants will potentially need to manage a much larger documentation set consisting of:
- Master agreement
- Legacy CSA (can still be used for legacy transactions)
- VM CSA
- IM CSA/CSD or Collateral Transfer Agreement (CTA)
- Trilateral account control agreement (ACA) – for example with Euroclear or Clearstream
- IM Collateral schedules.
Compound this with cross-jurisdictional relationships whereby parties may need additional documentation and the problem is not straightforward. The amendment process adds further complexity still.
Those wishing to get a clear picture of overall eligible collateral for optimisation, pricing and other purposes now need to look in multiple places and trying to manage without purpose built technology mapping back to underlying documents is no longer viable.
Help is at hand
Step 6 of ISDAs fact-sheet suggests that participants
‘Develop support for multiple IM and VM credit support annexes (CSAs) and collateral call issuance/reconciliation processes. Set up with any vendor(s) if needed.’
Logical Construct are pleased to announce that their Lyncs document data service helps to simplify managing this documentation challenge, utilising their pre-built data models capable of processing all CSA variants and therefore simplifying initial implementation and on-going business.
To find out more contact us using the form on our website.