Buy-side firms that managed the renegotiating of collateral agreements in-house were able to meet he go-live of variation margin rules with more
success on 1 March, according to the asset managers we
The suggestion comes as asset managers look to bring
back-office functions in-house again.
The new variation margin rules went live for all
counterparties in Europe and parts of Asia, with many
market participants fearing trades would be cancelled
because of a lack of readiness.
From the asset managers we spoke to, those that
were able to prepare their ISDA credit support annexes
(CSAs) in-house were able to weather the storm.
“Our legal team has made a huge effort over the past
few weeks to meet the deadline, more than 100 new
CSAs have been setup, more than 300 CSAs have been
amended by our operations teams, and our risk management team has ensured a permanent follow-up,”
says Fabien Oreve, global head of trading, Candriam.
Oreve added that the company managed their variation margin in-house.
One asset manager said they were able to trade with
all of their counterparties on 1 March, and saw no significant collateral disputes.
“We managed it in-house and because we were clear
with all of our counterparties that we would only negotiate the key changes required to comply with the new
rules, the process wasn’t that trick,” says a head of desk
at one asset management firm.
One European head of clearing at a global asset manager said its negotiations and systems were updated
prior to 1 March, while another head of trading added
everything went to plan despite a lot hard work.
“The stumbling blocks were pipelines in legal departments trying to get agreements amended in time. It was
a huge bottle neck for the buy- and sell-side. However
we’re almost becoming used to having regulatory check
points where the bottlenecks occur so business as usual
really,” the head of trading adds.
The asset manager added it managed its renegotiations and collateral management in-house, and did not
have to cancel any trades.
However, this was not the case for one buy-side firm,
speaking to The TRADE anonymously, which used a
tri-party agent ( TPA) to manage its post-trade process-
es. Unfortunately, its TPA could not make the deadline
and as a result, it had to inform its counterparties it
could not trade on that day.
This experience reflects the growing suspicion among
the buy-side for using third-party providers for functions they can easily perform in-house.
For some of the larger asset managers that are using
expensive outsourced solutions, there is a growing
demand to hire new people in non-traditional specialist
roles, such as heads of cash/collateral management.
“The buy-side are looking more towards an all-inclusive liquidity and cash/collateral management function
out of a need to better manage their cash exposure and
related risk,” says Joshua Satten, director of business
consulting, Sapient Global Markets.
“They want forecasting abilities and analysis; asset
managers need to look five to 10 days into the theoret-
ical future and see what the cash impact could be on
their portfolios, based on different investments, market
fluctuations, and FX movements. They are also looking
to glean information from this collected data to better
negotiate deals with their brokers.”
At this stage it is unlikely for regulators to take a harsh
approach to non-compliance, as long as they have pro-
cedures in place to make sure they adhere to the rules in
The challenge now for the buy-side and their swaps
dealers is continue services without being too affected
by the rules.
“We are endeavouring to maintain as much continuity
of service for our customers as possible, consistently
with supervisory guidance to be sensitive to risk exposures. At this stage we are seeing a lot of enquiries from
concerned customers, but little in the way of service disruption,” says Eric Litvac, head of regulatory strategy for
global banking and investor solutions, Societe Generale.
As more firms go live with the new variation margin
procedures, the next lot of conversations will most likely focus on pricing and the potential benefits of moving
to a cleared market.
Buy-siders weather VM storm by managing in-house