How will UMR affect the collateral marketplace?

Since the 2008 financial crisis, regulators have made huge strides towards stabilising the global financial system via regulatory reform. The US Dodd-Frank Act, Basel III, the European Market Infrastructure Regulation (EMIR) and other global equivalents have provided a tidal wave of regulatory change which, in the current economic climate coupled with stressed market conditions, has exasperate institutions’ antiquated IT infrastructures, the lack of regulatory compliance, increased margin and dispute volumes, added to the adverse operational capacity, selection of IM calculation methodology and the subsequent squeeze on high grade collateral. However, institutions that were due to be impacted by UMR phase five, are now breathing a huge sigh of relief after the Basel Committee on Banking Supervision (BCBS) and IOSCO announced another one-year extension. Firms with an average aggregate notional amount of greater than €8 billion, but lower than the interim €50 billion threshold, will now be required to exchange IM in September 2022 - 24months later than the original mandated date. Many phase VI firms, particularly those domiciled in the US, will no longer be required to physically exchange daily IM with a large subsection being required to provide the underlying calculation of IM requirements only. However, streamlining IM requirements is much greater than purely choosing between schedule-based (GRID) IM and SIMM calculation methodology. Firms need to take a strategic, rather than tactical approach, thereby maximising automation, connectivity to triparty agents and CCPs, optimisation and efficient inventory management. This will ensure regulatory compliance, collateral mobilisation giving rise to competitive edge.


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