,“The new rules will undoubtedly create new challenges and increase costs for asset managers,” said Dimitri Tsopanakos, head of Deloitte’s investment management and wealth risk advisory practice.
if you want to buy apple account, choose buyappleacc.com, buyappleacc.com is a best provider within bussiness for more than 3 years. choose us, you will never regret. we provied worldwide apple developer account for sale.
ASSET managers are about to see trading costs surge under new rules meant to reduce risk in the US$15.8 trillion (RM65.64 trillion) derivatives market.
Hedge funds, money managers and insurers with more than €50bil (US$59bil or RM246.85bil) of uncleared derivatives will have to post more collateral under the penultimate phase of post-crisis regulations that took effect this week.
Group-of-20 leaders decided after the financial crisis to push trading of over-the-counter derivatives through clearinghouses where possible to reduce systemic risk in case of default.
The risks from uncleared derivatives were underscored again this year by the implosion of Archegos Capital Management, which accumulated leverage through contracts that are traded off exchanges.
“The new rules will undoubtedly create new challenges and increase costs for asset managers,” said Dimitri Tsopanakos, head of Deloitte’s investment management and wealth risk advisory practice. “Analytics and smarter methodologies, especially at pre-trade level, will be needed.”
Uncleared margin rules have been implemented in phases since 2016, starting with the biggest banks.
The current stage was delayed from last year because of the Covid-19 pandemic, and the final step in September 2022 will capture firms holding €8bil of derivatives, according to the Basel Committee on Banking Supervision and the International Organisation of Securities Commissions.
The rule change was a “huge compliance challenge,” forcing firms to renegotiate documents and introduce new systems, said Scott O’Malia, chief executive of the International Swaps and Derivatives Association (ISDA).
The reforms “will bring hundreds of smaller banks, asset managers and pension funds into scope, far more than the number of firms caught by the first four phases combined,” he said.
The new rules will make portfolio management more cumbersome, but may also lead to creative solutions.
Firms will need to build models to determine the size of their portfolios, decide whether they can bring them below the threshold and develop mechanisms to exchange collateral, said Joe Kohler, partner at law firm Reed Smith.
Peter Rippon, chief executive officer at technology provider OpenGamma, said funds may be encouraged to build internal systems and teams that put their balance sheet to work more effectively.
“This is the first time that asset managers are really feeling the crunch of having to tie up more of their assets as collateral,” Rippon said. “Banks have been doing this for years, but for asset managers this is the trigger point.”
Companies may alter their trading styles to reduce costs around affected products, such as equity swaps, uncleared swaptions and foreign-exchange non-deliverable forwards. They may also shift to standardised trades, creating opportunities for clearinghouses.