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