The world’s largest banks and market infrastructures have teamed up for a new utility aimed to reduce the number of disputes over margin flows for over-the-counter (OTC) derivatives.
Banks including BNP Paribas, Citi, Societe Generale, and UBS, as well as Euroclear and DTCC, have become new backers for the new utility created by U.S. technology vendor AcadiaSoft. ICAP is an existing investor that has increased its stake in the utility.
They join existing investors Bank of America Merrill Lynch, Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, Morgan Stanley and State Street.
The utility is one of the rare examples of the banking industry cooperating to solve a mutual regulatory challenge.
“This is the realization of an effort initiated by the industry over a year ago to develop centralised margin processing that allows the seamless integration of third-party services into a hub,” says Maurice Tamman, global head of Margin and Collateral Operations, Goldman Sachs.
Tougher rules due to take effect in September 2016 will force dealers to post more collateral to back their trades and reduce the amount of credit exposure a counterparty faces. However this had led to concerns that this will lead to disputes over how much margin is required between banks and buy-side firms.
The venture replaces ‘Project Colin’, which was set up by Goldman Sachs earlier this year but failed following the departure of its architect, Paul Christensen, in March this year.
The utility will leverage AcadiaSoft’s MarginSphere, its electronic messaging service for OTC derivatives, ICAP TriOptima’s triResolve, its trade reconciliation service, and the Margin Transit Utility operated by the DTCC-Euroclear GlobalCollateral Joint Venture.
“The creation of this new open platform reinforces the importance of collaboration across the capital markets to reduce risk, increase transparency and improve operating efficiency for our clients,” adds Tim Howell, CEO, Euroclear.
Banking Industry Unites for Swaps Margin Utility
The world’s largest banks and market infrastructures have teamed up for a new utility aimed to reduce the number of disputes over margin flows for over-the-counter (OTC) derivatives.