IT Budget Considerations 2022 - Collateral, Margin & Risk Mitigation

By Mark Demo, Head of Community Development at Acadia 

Welcome to the 4th year that Acadia has published its budget planning insights. We write this annually to give our clients an idea where we are investing our resources and sharing where we see your peers investing, so you can, if you choose, factor these ideas into your planning effort. We are committed to providing you with no cost, low cost or cost mutualized options to drive down your operating expense and increase your Straight-Through Processing (STP). 

We strive to meet this commitment to you every day in our words and actions. 

The Uncleared Margin Rules (UMR) have been a huge force for driving standardization. We see this playing out now across the market in several different ways – in one example, firms are pushing to extend the transparency and timeliness benefits of ISDA SIMM into the calculation and exchange of non-regulatory initial margin. In another example, capital calculations which were largely based on internal risk models are now being phased out ahead of 2023 regulatory requirement that now favors a more standardized approach. 

Also, as the later stages of UMR come to fruition, we see a new exposure management trend emerging brought about by the regulatory relief granted by prudential regulators that enabled Phase 5 and 6 firms to delay their “operational readiness” until it was clear that they would actually move regulatory initial margin. 

Read further to understand how Acadia is investing in response to these trends: 

• ‍Risk: We expect every Initial Margin (IM) Phase 5 and 6 firm to leverage the regulatory relief that allows them to delay their operational readiness if they don’t exceed the 50MM IM threshold vs their in-scope dealer counterparties. This means that unlike prior phases, IM monitoring will be a central part of every IM Phase 5 and 6 firm’s go-live experience. Acadia’s IM Threshold Monitor Service is live and already being used by hundreds of Phase 5 firms. The basic version of the service enables Phase 5 and 6 firms to centrally view all their regulatory IM exposure (as calculated by their dealers) free of charge. If your firm is in-scope for Regulatory IM and wants to leverage regulatory relief and delay their operational readiness until it’s clear that you will actually exchange regulatory initial margin, Click here to learn more. 
• When regulators delayed IM Phase 5 go-live by a year and created a new IM Phase 6, many Phase 5 firms asked Acadia to devise a way that they could continue their current IM compliance projects. In response, Acadia developed the IM Soft Launch program which enabled firms to go-live with their in-scope dealer counterparties in our IM Threshold Monitor or IM Exposure Manager solutions, free of charge, until their actual compliance date. Acadia’s IM Phase 5 soft launch program was extremely successful with hundreds of firms participating. Acadia expects to begin its IM Phase 6 Soft Launch program in early October of this year. To register your interest in the Phase 6 Soft Launch program click here.
• Over this past year, ISDA SIMM™ has proven its non-procyclicality under the most stressful set of circumstances (read our data study here). We see more firms moving away from VAR or percentage of notional for their house IA and moving towards the adoption of ISDA SIMM™ for its stability, transparency, and timeliness benefits. Some firms who use ISDA SIMMTM for house IA already reconcile these calculations in IM Exposure Manager. Click here for more information.‍

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• IM Risk Generator: if your firm is in-scope for Regulatory IM and must calculate its own Reg IM exposure (via ISDA SIMM™ or grid) and validate it on a regular basis; we can support you via our sensitivity and IM exposure calculation and back-testing and benchmarking services. We currently perform these services for dozens of Phase 5 firms. Click here for more information.‍‍

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• ‍Messaging: Last year we recorded that our clients are looking to achieve 100% automation of their margin call workflow with Acadia. Today, we are closer to that goal. We now process over 80% of global OTC bi-lateral margin calls, up from 70% this time last year. In fact, many of our clients have already automated well over 90% of their margin call volume. Click here to read more about how you too can achieve this level of automation in OTC and other traded products (including substitutions) where collateral is exchanged.

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• ‍Payments: Over 300 firms and vendors have integrated to our platform for interest statement reconciliation. If your firm is ready to eliminate the time-consuming and tedious process of manual interest statement matching, click here for more information. With this initial success in cash collateral under way, we are now moving on to swap and securities collateral payment matching. Click here for more information.‍

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• Agreements: If your firm didn’t have a digital documentation strategy before the pandemic, the events over the past year have sure laid bare the clear need for one. If your paper agreements were buried in a filing cabinet somewhere and you needed to analyze them for a Libor remediation project, how do you gain access to them when you can’t physically move about? In 2021 Acadia successfully expanded on its existing partnerships with Genpact and LikeZero for contract digitization and contract analysis to also include Arteria AI, ISDA Create and Logical Construct. Click here to read more about how Acadia works with these and other vendors to support your digitization and contract analysis needs. These services and more are delivered under one seamless and cost-effective offering from Acadia. ‍

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• Term Sheets: Agreement Manager is also integrated with IM Threshold Monitor via functionality that makes it easy for you to pre-agree key threshold monitoring terms with your counterparty while establishing the party/counterparty relationship in the IM Threshold Monitor service. We have also partnered with ISDA Create and others to ensure one seamless workflow from IM threshold monitoring into the legal documentation negotiation process and back into Acadia to facilitate STP to your document digitization and collateral management processes.‍

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• Data Exploration: AcadiaPlus Data Exploration (DX) suite is now available to provide a range of standard, premium and designer report services. This unique reporting platform provides an impressive list of reports and analysis reflecting every aspect of the Acadia services that you and your counterparties utilize, including some unique data perspectives (like peer group and industry comparisons) that will only ever be available from Acadia. Visit our website to book a meeting to learn more about the DX Suite.

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We are grateful for the opportunity to partner with our clients, and we look forward to another great year working together. ‍

About Mark Demo ‍

Mark D. Demo is Head of Community Development at Acadia and an integral part of the Strategic Development organization. Mark has more than 20 years’ experience in the OTC Derivatives market and has served as a co-chair of the ISDA Collateral Steering Committee. He has participated on International Swaps and Derivatives Association (ISDA) working groups and has been involved in developing changes in collateral operations associated with financial regulations under Dodd Frank and EMIR. Mark is a collateral subject matter expert who is now focusing on new product development and overseeing client and prospect engagement programs across Acadia’s new and existing services.‍

For more information please visit us at acadia.inc ‍

Or email us at [email protected] 

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