[ T H O U G H T
L E A D E R S H I P
|
L C H ]
Fig 1: LCH ForexClear NDF Total Notional Cleared
1,800
240,000
200,000
1,200
160,000
900
120,000
600 80,000
300 40,000
0
Jan-18
Feb-18
0
1,500
280,000
Total Notional
Total Trades
Source: LCH
reflected in the pricing that asset
managers receive and can affect
their access to liquidity.
While the implementation
of the UMR’s final phase has
recently been postponed to 2021,
there is certainly still scope
for the buy-side to engage in
preparation before the rules
come into force. We’ve seen the
sell-side leading the way when
it comes to using clearing to
prepare for the UMR and benefit
from multilateral netting. There
is now a clear opportunity for
the buy-side to make the same
gains.
Firms should be considering
whether there are actions that
they can take that will keep them
beneath the UMR thresholds
now, before the calculation for
clearing starts in phase six. For
example, some asset managers
may have a portion of their
portfolio that they could pass
through a clearinghouse. As a
result, those transactions would
not be included in the aggregate
average notional amount (AANA)
potentially removing them from
scope of UMR.
What is the role of clearing?
TN: The primary role of clearing
is to provide counterparty risk
management to its members
and their clients. By accessing a
single pool of liquidity through a
CCP, participants are also able to
benefit from capital, operational
and margin efficiencies that
they would otherwise not be
able to achieve in a non-cleared
environment.
More specifically related to the
UMR, by clearing transactions
at a CCP, those trades may no
longer contribute to the AANA
calculation, meaning that their
derivatives activity may come in
beneath the phasing threshold.
Running an early analysis may
also demonstrate to a firm
whether there is opportunity to
clear a portion of their portfolio
which may consequently bring
them out of scope for that phase
of the UMR.
Clearing at ForexClear
provides very effective netting
at the portfolio level, which
means that all of a firm’s
cleared transactions can
be netted together under a
single counterparty. Posting
cleared margin for these netted
portfolios is cheaper than
bilateral margin. Many buy-side
firms are already running our
portfolio margin simulation to
project the potential savings that
can be achieved.
A CCP can also help firms
simplify or solve the operational
challenges associated with
getting set up for UMR, as
such only requires an asset
manager to prepare contractual
documents with one single
counterparty (such as LCH)
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