[ T H O U G H T
L E A D E R S H I P
as opposed to setting up
complex documentation with
each of their trading partners.
In addition, firms are able
to settle initial and variation
margin while benefitting from
netting facilitated by the central
counterparty. Put simply,
clearing removes much of the
complexity in the bilateral
trading space that has the
potential to become even more
complicated under UMR.
What actions do you think firms
should be taking?
TN: Early preparation is
absolutely key due to the sheer
amount of operational set-up
that firms will have to complete
16 // TheTrade // Fall 2019
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L C H ]
in order to comply with the
UMR.
The first priority should be to
understand which phase of the
UMR the firm must comply with.
Once that’s clear, asset managers
should begin to take advantage
of the opportunities available to
optimise their portfolios with
the aim of keeping their activity
beneath the threshold. Running
in-depth portfolio analysis, and
AANA calculations, is also key in
understanding which parts of a
portfolio are able to be cleared.
In many cases, it may be cheaper
for firms to move an entire
portfolio to clearing.
Firms should also be looking
at what products within the
uncleared bilateral pool are
clearable. At LCH ForexClear,
we clear FX NDF products for
sell-side members and buy-side
clients. For FX Options, we
operate a deliverable FX service
for dealers, and we are aiming
to expand our offering to launch
non-deliverable options clearing
in 2020.
Some clients are looking at
product substitution to optimise
their portfolios, and as a result
we are seeing piqued interest
in clearing G10 NDF products
at LCH. Similarly, we believe
non-deliverable options could be
a useful product for substituting
deliverable FX options where
appropriate.