SASLA: Reg IM brings questions to South Africa’s SFT market
21 February 2025 South Africa
Image: SFT
Industry participants reviewed the upcoming initial margin (IM) regulation set to face South Africa in September, and how it will impact the securities financing market.
Nicolette van der Merwe, business manager of collateral at Standard Bank, asked: “Are clients going to move away from derivatives and channel that to repo to get away from some of the collateral costs?”
Attendees of the South African Securities Lending and Collateral Management conference gathered in Cape Town where the ‘Collateral and Tech’ panel explored the ever-changing collateral landscape and the upcoming Uncleared Margin Regulation (UMR).
According to van der Merwe, the collateral space locally has “so much going on at the moment”. She listed cost, sustainability, and opportunity as main themes in this area.
“If we can get the agility right and education in the market, then we will be in a very good space to execute liquidity opportunities with confidence and excellence,” she added.
The South African market is still grappling with regulatory changes and the introduction of triparty. On the panel, van der Merwe noted that “we have the regulators keeping us on our toes, who will likely make us wait until the 11th hour before giving the ODP's clear guidance on our model approval required for the September 2025 regulatory IM exchange”.
The regulation in question focuses on OTC derivatives and was brought about by the Basel Committee to ensure that banks and ODP providers reviewed their liquidity, risk, and capital management.
In a global market sense, this means, operationally, that firms need to look at their collaboration with treasury and trading more efficiently. Van der Merwe explains: “Those two businesses haven't historically had too much interaction except for funding.
“That becomes much more pertinent now because firms have to balance which part of their collateral pool is going to HQLA and which part is going to regulatory IM.”
In “a nutshell”, van der Merwe summarises that the regulation is a way for the regulators to ensure counterparty credit risk is better managed and to ensure sustainability of the market.
Following the conversation, Farzana Khan, head of Collateral Services at Strate, added: “The focus on IM is definitely growing. In 2024, we did expect some impact, which was limited, and now we’re gearing up for that impact in 2025 where we’re expecting 5, 6 or 7 entities to be in scope.”
Khan highlighted that triparty can play a strong supporting role in the readiness for the regulation. In addition, it is important to leverage global experience. “Someone has walked this path before you, you don’t have to reinvent the wheel, and you can almost short-circuit in some instances by leveraging their lessons learned.”
Steve Lethaby, senior vice president, Global Financing and Funding sales and relationship management at Clearstream Banking, explained that triparty “makes life so much easier for both counterparties” in terms of regulation IM compared to bilateral agreements.
He noted that triparty agents add value such as mark to market, substitutions of collateral, corporate actions, changing collateral schedules and managing the eligibility of these also.
Currently, one of the challenges facing the South African market in relation to regulation IM is that regulators have yet to approve a standard initial margin model (SIMM).
Failing approval, van der Merwe indicated that the region will be forced to “fall back” on a standardised method, otherwise known as “the grid”, which is “much more punitive”.
The clock is ticking for those yet to fall in scope of the regulation, panellists urged clients to onboard sooner rather than later.
Nicolette van der Merwe, business manager of collateral at Standard Bank, asked: “Are clients going to move away from derivatives and channel that to repo to get away from some of the collateral costs?”
Attendees of the South African Securities Lending and Collateral Management conference gathered in Cape Town where the ‘Collateral and Tech’ panel explored the ever-changing collateral landscape and the upcoming Uncleared Margin Regulation (UMR).
According to van der Merwe, the collateral space locally has “so much going on at the moment”. She listed cost, sustainability, and opportunity as main themes in this area.
“If we can get the agility right and education in the market, then we will be in a very good space to execute liquidity opportunities with confidence and excellence,” she added.
The South African market is still grappling with regulatory changes and the introduction of triparty. On the panel, van der Merwe noted that “we have the regulators keeping us on our toes, who will likely make us wait until the 11th hour before giving the ODP's clear guidance on our model approval required for the September 2025 regulatory IM exchange”.
The regulation in question focuses on OTC derivatives and was brought about by the Basel Committee to ensure that banks and ODP providers reviewed their liquidity, risk, and capital management.
In a global market sense, this means, operationally, that firms need to look at their collaboration with treasury and trading more efficiently. Van der Merwe explains: “Those two businesses haven't historically had too much interaction except for funding.
“That becomes much more pertinent now because firms have to balance which part of their collateral pool is going to HQLA and which part is going to regulatory IM.”
In “a nutshell”, van der Merwe summarises that the regulation is a way for the regulators to ensure counterparty credit risk is better managed and to ensure sustainability of the market.
Following the conversation, Farzana Khan, head of Collateral Services at Strate, added: “The focus on IM is definitely growing. In 2024, we did expect some impact, which was limited, and now we’re gearing up for that impact in 2025 where we’re expecting 5, 6 or 7 entities to be in scope.”
Khan highlighted that triparty can play a strong supporting role in the readiness for the regulation. In addition, it is important to leverage global experience. “Someone has walked this path before you, you don’t have to reinvent the wheel, and you can almost short-circuit in some instances by leveraging their lessons learned.”
Steve Lethaby, senior vice president, Global Financing and Funding sales and relationship management at Clearstream Banking, explained that triparty “makes life so much easier for both counterparties” in terms of regulation IM compared to bilateral agreements.
He noted that triparty agents add value such as mark to market, substitutions of collateral, corporate actions, changing collateral schedules and managing the eligibility of these also.
Currently, one of the challenges facing the South African market in relation to regulation IM is that regulators have yet to approve a standard initial margin model (SIMM).
Failing approval, van der Merwe indicated that the region will be forced to “fall back” on a standardised method, otherwise known as “the grid”, which is “much more punitive”.
The clock is ticking for those yet to fall in scope of the regulation, panellists urged clients to onboard sooner rather than later.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
