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INITIAL MARGIN THRESHOLD BREACH ASSESSMENT SERVICE

Tonic provide clarity, and accelerated Initial Margin readiness, via our powerful Threshold Breach Assessment service.‍

THE PROBLEM

BCBS/IOSCO announced in March 2019 that relationships do not need to be operationally-ready to exchange collateral until their exposure breaches the exchange threshold ($50mill at group-level).

Global regulators have followed suit and since translated this guidance into law. With that rule change in mind, firms starting their Initial Margin deliveries should, as a first step, confirm their compliance scope for 1st September go-live date and beyond by answering two key questions:

1.    Do we have relationships which will breach the exchange threshold?  

2.    If so, when will those threshold breaches occur?

Answers to these questions will directly drive a firm’s Initial Margin compliance scope.

If firms breach threshold they will have to fully repaper their IM relationships and incur the entire set of front-to-back changes, across Calculations-Operations-Custodians-Legal. Whereas firms with exposure that remains below threshold will have to deliver a far smaller compliance scope, focused on calculation tasks including exposure calculations, threshold monitoring and SIMM model governance & backtesting tasks.

With that in mind we’d strongly advise Phase 6 firms, as one of the very first compliance tasks, to identify as soon as possible if and when their relationships will breach the exchange threshold.

THRESHOLD BREACH ASSESSMENT

Tonic can help in-scope firms accelerate their compliance planning via our Threshold Breach Assessment service. Our service provides…

A SINGLE, INDEPENDENT VIEW ACROSS ALL TRADING RELATIONSHIPS OF WHICH WILL BREACH THRESHOLD AND BY WHEN.

WE DO THIS BY USING DETAILED UPFRONT ANALYSIS, WHAT-IF SCENARIO PLANNING, FORECAST ISDA SIMM & SCHEDULE CALCULATIONS AND THRESHOLD OPTIMISATION.

Margin Tonic’s Threshold Breach Assessment (TBA)

OUTCOMES

- A management view across all relationships of which will breach the exchange threshold and by when

- Independent IM forecast exposure calculations from industry specialists

- Results comparison for ISDA SIMM vs Grid exposure calculations

- Categorisation of relationships into quick/slow/no-breach relationships

- Exchange threshold allocation and optimisation, based on your firm’s specific circumstances

BENEFITS

- Accelerated compliance planning

- Ability to plan and make key decisions with confidence

- Protection against unnecessary delivery and associated costs

- Outsourcing of the heavy lift analysis and data tasks for forecast exposure calculations


OUR END-TO-END IM SERVICES

At Tonic we provide a flexible, end-to-end set of Initial Margin consultancy services.

Our Initial Margin service menu contains a series of modules - shown in the visual below - covering high-value scope analysis, education and execution services.

Please get in touch for more details of our IM service menu, and how we can help your firm accelerate its compliance objectives.

For more information, please get in touch with us at info@thetonicconsultancy.com

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