Citi has launched a Regulatory Initial Margin Calculation Service, a solution for buy-side firms required to post initial margin under the Uncleared Margin Rules (UMR). Financial institutions such as asset managers, pension funds and insurance companies are scheduled to come into scope of the regulations based on volume thresholds that take effect on September 1 of 2020 (known as Phase 5) and 2021 (Phase 6). In order to comply with the regulations, many firms that didn’t have to post initial margin before will have to establish new collateral management capabilities, including the ability to calculate initial margin.
Citi’s Regulatory Initial Margin Calculation Service helps firms as they progress from needing to estimate their future initial margin levels before the deadlines, to monitoring initial margin levels once the thresholds take effect, to operating full daily initial margin calculation and reconciliation. The service leverages the ISDA SIMM™ model made possible through a partnership with AcadiaSoft, an industry collaborative, focused on margin automation and collateral management.
“There are several key questions that in-scope firms need to address,” said Diana Shapiro, North America Head of Collateral Management Services. “When will they need to start posting collateral, how much collateral will be required, and how can they optimize collateral and mitigate the cost of compliance? An early and accurate view of the likely initial margin levels will enable clients to plan the scope and scale of work needed to comply with the regulations.”
Citi’s service offers ad hoc estimation, for which no set-up is required, or periodic initial margin calculation based on a regularly supplied trade file. The initial margin calculation can be applied to existing portfolios or to hypothetical portfolios for the purposes of simulating initial margin under different scenarios.
“As firms come into scope of UMR under phases 5 and 6, the additional margin obligations could strain their operational platforms, drain liquidity from their portfolios and increase collateral drag,” said Fergus Pery, Global Head of Collateral Management Services. “The role of collateral management here goes beyond just another regulatory readiness exercise. We see this as an opportunity to help our clients understand the growing impact of collateral management on investment performance and to create value by implementing sound practices today.”
This service builds on Citi’s investment in its collateral management platform over the past 18 months, which includes the migration to a fully cloud-based architecture to enable greater scalability and faster time to market for new capabilities. Citi is also developing a collateral analytics solution to help clients optimize funding costs and has a full front to back Regulatory Initial Margin offering that includes both Collateral and Custodial services.
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