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Alternative Market Briefing

Managers need to take a new look at how they manage collaterals

Tuesday, November 26, 2013

Benedicte Gravrand, Opalesque Geneva:

Advent, a firm that designs and delivers software and services for investment managers, urges those that trade in OTC derivatives to take a proactive stance ahead of the full implementations of the new rules.

"The switch to centralized clearing of derivatives is proving to be more complicated than anticipated, but fund managers ignore this change at their peril," says Advent in a new White Paper called The impact of centralized derivatives clearing. "Fortunately, greater transparency and competition in this market stands to benefit all parties."

Mandated by both the US Dodd-Frank Act and the European Market Infrastructure Regulation (EMIR), the clearing of over-the-counter (OTC) derivatives through central counterparties (CCPs) was meant to take effect at the end of 2012. However, it turned out to be more complicated than expected.

In the US, centralized clearing became mandatory for interest rate swaps in March 2013, through a three-phased approach for different types of participants. In Europe, it is still work in progress, and should be completed during 2014. Under the new rules, firms that trade 
in OTC derivatives will be required to make larger margin commitments and
 will be subject to more frequent margin calls, maybe on a daily basis. Moreover, CCPs will have different asset valuation method......................

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