The Singapore Exchange and derivatives margin analytics provider Cassini Systems have joined forces to help SGX market participants prepare for the Uncleared Margin Rules (UMR) requirements.
Under the agreement, SGX will leverage Cassini’s domain expertise to provide market users with free analyses to determine their average aggregated notional amount (AANA), representing the gross value of open, non-centrally cleared derivatives positions.
International regulators use the AANA to determine whether a firm falls in scope for each phase of UMR, with Phase 5 being the next in line scheduled to take effect in September 2021.
Banks, ass
et managers, hedge funds and pension funds who are subject to a mandatory exchange of Initial Margin (IM) with their counterparties for their bilateral over-the-counter (OTC) agreements over $50m IM threshold per counterpart will be impacted.
Phase 6, scheduled to take effect in September 2022, has a threshold of $8 bn AANA.
Although it is a year away, SGX and Cassini, are offering the service in advance to allow firms in scope to prepare. Together they will also educate and raise awareness among market participants on the process for complying with UMR, through webinars that will take place in the coming months.
KC Lam, SGX Head of FX and Rates, says: “By September 2022, more than a thousand firms will be impacted by UMR, thus it is important to start planning for it now. Cassini is a natural partner for us in this effort to help our market participants with a best-of-breed solution.
He adds, “Once an SGX market participant provides us with information on its OTC positions, we will work with Cassini to turn around a timely and comprehensive analysis. UMR will inevitably increase the cost burden for many of our clients. SGX’s FX Futures (including FlexC FX Futures) that are traded and cleared on exchange was our first solution offered to clients to help them manage UMR.
We are now taking a step further by assisting them to take steps to lower their AANA, simply by understanding how they can alter the balance of exchange-traded and non-centrally cleared products within their portfolios.”
Liam Huxley, CEO and founder of Cassini, says: “Those firms that conceivably could fall in scope for Phase 5 should immediately begin efforts to understand their AANA and strategise on how they might identify opportunities to re-allocate their portfolio, reduce their margin obligations to potentially achieve substantial cost savings and delay falling in scope while still meeting their trading goals. If they wait until it is time to report the information to the regulator, it is often too late to make these adjustments.
