Asset managers could save ‘millions’ through clearing ahead of UMR
31 July 2019 London
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Asset managers could save millions of dollars through clearing ahead of Uncleared Margin Rules (UMR), research from OpenGamma has suggested.
OpenGamma explained that asset managers have been dragged into new rules making over-the-counter (OTC) derivatives more expensive.
The study showed that asset managers pulled into phases four and five of the UMR will be able to save up to 53 percent in initial margin when clearing compared to uncleared margining.
According to OpenGamma, for asset managers with portfolios above €750 billion in notional, clearing a greater volume of OTC trades frees up potentially millions of dollars worth of assets to put to use elsewhere.
Peter Rippon, CEO, OpenGamma, commented: “The overarching goal of UMR is to strongly incentivise asset managers to stop trading bilateral uncleared derivatives, and shift towards central clearing.”
“Unfortunately, it’s not as simple as just deciding to clear, firms then need to decide where to clear. A derivative may be eligible to clear at numerous venues, but an asset manager then needs to factor in liquidity and whether they have an existing position, not to mention any pricing discrepancies between the clearinghouses.”
Rippon concluded: “The trouble is, at a time when investors are putting fund performance under the spotlight following Neil Woodford’s woes, the last thing asset managers need is to be restricted from delivering strong returns. This problem can be solved, which is why we are seeing more firms carefully considering the differences in the margin calculated, and the level of margin that will be required for UMR.”
OpenGamma explained that asset managers have been dragged into new rules making over-the-counter (OTC) derivatives more expensive.
The study showed that asset managers pulled into phases four and five of the UMR will be able to save up to 53 percent in initial margin when clearing compared to uncleared margining.
According to OpenGamma, for asset managers with portfolios above €750 billion in notional, clearing a greater volume of OTC trades frees up potentially millions of dollars worth of assets to put to use elsewhere.
Peter Rippon, CEO, OpenGamma, commented: “The overarching goal of UMR is to strongly incentivise asset managers to stop trading bilateral uncleared derivatives, and shift towards central clearing.”
“Unfortunately, it’s not as simple as just deciding to clear, firms then need to decide where to clear. A derivative may be eligible to clear at numerous venues, but an asset manager then needs to factor in liquidity and whether they have an existing position, not to mention any pricing discrepancies between the clearinghouses.”
Rippon concluded: “The trouble is, at a time when investors are putting fund performance under the spotlight following Neil Woodford’s woes, the last thing asset managers need is to be restricted from delivering strong returns. This problem can be solved, which is why we are seeing more firms carefully considering the differences in the margin calculated, and the level of margin that will be required for UMR.”
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