A new $50billion threshold for UMR and 1-year extension

Today BCSB IOSCO put out a press release announcing two significant changes to the UMR timeline:

  1. A one-year extension, to Sep-21 for the final UMR implementation phase for firms with > $8 billion of aggregate average notional amount (AANA) of un-cleared derivatives.
  2. An new phase for firms with > $50 billion of AANA on the original UMR date of Sep-20.

A summary of the revisions is here and re-produced below.

Background

The industry has for some time now, via ISDA and other trade associations, argued that the timelines to on-board the expected number of entities (1,100?) in the final Phase 5 was not achievable.

In Oct 2018, I covered an ISDA, SIFMA and other trade associations letter to BCBS and ISOCO, see Should the $8 billion UMR threshold for IM increase to $100 billion?, which advocated for the title and a number of other changes.

At the end of that article in the My Thoughts section, I wrote the following:

Note the mention of Phase 5a and Phase 5b and $50 billion, decent guesses.

Though my next line, not re-produced was “I am not convinced on any of these choices”!

(As the editor I am allowed a judicious extract with the power of hindsight).

Final Thoughts

Given what we see in the market as both a commentator and an ISDA SIMM licensed vendor, I am very supportive of the one-year delay to Sep-21 and the introduction of a new higher threshold in Sep-20.

The level of preparedness and the work that remains for a successful implementation, means that the risk of OTC Derivatives market disruption are far too high. I expect the BCBS IOSCO guideline will rapidly be adopted by regulators in each jurisdiction.

In addition, I expect that the new AANA threshold of $50 billion, will act as a further incentive for entities to clear more and reduce un-cleared derivatives exposure to be captured only in the final Sep-21 phase.

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