Perspectives 2022 - Reflection on the pace of change

By Mark Demo, Head of Community Development at Acadia 

Sharing my perspectives each year provides me with the opportunity to reflect on the pace of change that our industry has been through in the past year and to look forward to the progress that we expect to see in 2022. Uncleared Margin Rules has been an overriding factor in Acadia’s innovation – we strive to assist firms in their compliance journey through our mutualized services and ongoing support and advice. 

Take a moment to read my perspectives from multiple vantage points as we shift towards the final quarter of 2021 and lay the groundwork for a successful 2022. 

From a Risk Perspective: 

• With Phase 5 UMR go-live closing fast upon us, Acadia estimates that 280+ firms will be in-scope this year of which we predict that approximately one half (or 140) will immediately move margin with one or more of their in-scope counterparties. We expect that the balance of firms will begin by monitoring their IM exposures only. We developed our IM Threshold Monitor Service specifically for these firms – offering a centralized service, complete with participating dealers Regulatory IM exposure figures to enable easy, real-time tracking of IM exposure across all your counterparties. 

• ‍IM Sole Calc: Some in-scope buy side firms who already depend on their dealers as calculation agent for House IA will also do so for Reg IM as well. Our IM sole calc services enables in-scope dealers to service these buy side clients by sending a notification (expected call) to our Margin Manager service where the Phase 5 client can view and respond to their dealer notifications. We expect a significant number of eligible Phase 5 and 6 firms to opt for this most in-expensive means to comply with the non-cleared margin rules once they do approach the point of moving initial margin. 

• ‍Pre-Trade “What If”: We expect a significant number of Phase 5 and 6 firms to make every effort to avoid breaching the $50MM IM threshold limitation by counterparty group. Our pre-trade “what if” service will be delivered as a separate add-on to the IM Threshold Monitor Service. 

• ‍Risk Services Suite: for firms that will move margin in September 2021, we have combined our regulatory services including: Agreement Manager, IM Risk Generator (IMRG) Service, IM Exposure Manager (IMEM), IM Threshold Monitor (IMTM) and our Margin Manager (MM) service into one simple solution at a cost point that no Phase 5 or 6 firm would ever replicate on their own. Please get in touch or find out more here if you have affiliates who are on their own from a compliance perspective or have clients who are struggling with the reg IM requirement. 

• ‍ISDA SIMM™ for House IA calculation: we see firms starting to use ISDA SIMM™ as a replacement to their VAR or percentage of notional based House Independent Amount (IA) calcs. Buy side firms like the IA dispute reduction and transparency that Acadia’s IM Exposure Manager service provides over and above the existing house IA process. If your firm already posts house IA and will soon have a Regulatory IM requirement, please contact us to speak to one of our specialists. 
  

• Initial Margin Backtesting and Benchmarking. If your firm is required to comply with the regulatory IM validation requirement for 2021 because the EU regulators did not publish the revised Model RTS in time for IM Phase 5 relief, or you are looking for 2022 cost reduction opportunities, outsourcing your backtesting and benchmarking work to Acadia could offer significant savings over your existing or planned process. More information can be found by clicking here. 

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From a Margin, Collateral Messaging & Workflow perspective: 

• In 2022 we see firms continuing to drive up their margin STP rate and drive down their margin headcount by continued adoption of messaging beyond OTC Bi-lateral margin calls and into TBA, Repo, Cleared (FCM to buy side), ETD and even Securities Lending. 

• For example, in the Cleared business, we can now process margin calls by asset class, by Clearing House, by currency and by sub account (or any combination of the above). Please reach out to our onboarding team if you are ready to automate your cleared margin call process. 

• UMR Collateral Suite: We have packaged a set of Acadia services within a pay as you scale model that enables a low or free entry point for Phase 5 & 6 firms. Using IM Threshold Monitor for firms unlikely to breach the 50MM IM threshold and IM Exposure Manager in combination with Collateral Manager for firms who may breach the threshold either immediately or over a period of time – this solution enables monitoring, calculation and reconciliation of Initial Margin, full margin call automation and management of your collateral within one seamless integration. 
  

From a Relay perspective: 

• Our Relay* volume continues to grow. We now count over 600 firms live on Relay representing over 65,000 margin calls each month. If your firm wants to move to 100% automation of margin calls – and are willing to partially dedicate a resource to this effort, please get in touch with us and we will map out a project plan to work directly with your firm. 
  ‍*Relay is a service that enables intelligent automation of manual margin call messages from your clients that have not yet joined Acadia’s margin community. 

From a Custodian perspective: 

• We see strong interest from custodians in directly connecting to Margin Manager – via our Settlement API, for delivery of the pledge message (or RQV and dummy pledge) to the tri-party/custodian with a settlement status back to Acadia and to you. 

• We are in production with DTCC’s Margin Transit Utility (MTU) and BNY Mellon’s Margin Connect service to enable automated settlement and eliminate any portal logins or faxing between parties. 
  

From a Payments perspective: 

• Interest Processing:- we expect continued buy-side take up of the interest statement reconciliation service – we currently have over 300 firms enabled for interest statement reconciliation with over 190 actively using the service. If you are not currently integrated to us for interest statement reconciliation, please consider doing so. Feel free to speak to one of our sales leads to discuss the benefits and to map out a project plan. 

• We see strong buy-side interest in extending support for payments processing beyond cash collateral and into payments and substitutions on securities collateral, swap payments (e.g. resets, coupons, etc.) as well as separate payments for PAI, commissions and other fees on cleared agreements. We are targeting production for our swap payment confirmation service which follows the model established with interest payments by the end of 2021. If you don’t already attend our payment working group – please consider assigning someone from your firm. Contact [email protected] for more information. 

From an Agreements Perspective: 

• We are creating a single, golden source document repository for all collateral agreements. 

• We have partnered with LIKEZERO, Arteria AI and Genpact for CSA document digitization and contract analysis to support the IBOR to SOFR transition and other projects. 

• We recently carried out an independent market study with the help of Aite Novarica that lays bare the cost and operational advantages of digitizing legal agreements. You can read the full study here 

• We also integrate to ISDA Create for CSA negotiation 

• Finally, Agreement Manager has created new Term Sheet/Side Letter functionality which is included into our IM Threshold Monitor service at no cost and is designed to help you pre-agree key monitoring terms and to set up monitoring relationships in IM Threshold Monitor. 

As you can see – we have many bases covered for firms of all sizes that may be looking towards a central, mutualized service offering. Our Account Management team can discuss your specific requirements and tailor a combination of solutions that fit your organizational and budgetary requirements. 

We look forward to hearing from you. 

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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.

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