LIBOR fallbacks and Uncleared Margin Rules are hot topics across the industry. We highlight the Basel guidance that any amendments to LIBOR contracts as a result of Benchmark reform will not trigger the need to post margin. This is important guidance to ensure the uptake of new RFRs is simple. Two of our big blog […]

Whille writing my recent blogs on FX SIMM IM optimization (here and here), I wondered about progress on the Rates equivalent.   I knew swaptions to be key and that Capitalab had focused on them from the get-go and also that Capitalab pipes executions through its affiliated BGC SEF. So, I took at look in SEFView […]

Uncleared Margin Rules (UMR) for IM have now been in place for two and a half years The ISDA Margin Survey Year-End 2018 provides a good overview of the regulatory IM received $83.8 billion at Dec 31, 2018, up from $73.7 billion at Dec 29, 2017, an increase of 14% Timeline for Margin Rules The following diagram from the […]

Since Uncleared Margin Rules started to bite in September 2016, traditional NDFs have shifted markedly to clearing in response to UMR (see NDF Volume Data). Deliverable currency NDFs have also experienced dramatic increases but with much smaller clearing percentages.  Why the low clearing percentages?  Answer: there’s a whole different purpose to these trades. I explain […]

We summarise the recent CCP12 report “Incentives for Central Clearing”. This report looks at the current state of play in Cleared FX, Interest Rates and Credit. It analyses particular niches in clearing, including Latam Rates and NDFs. It concludes that clearing has increased for Linear products, but Option markets remain uncleared. Further studies on legacy […]

In my previous posts I concluded that uncleared counterparty risk is bigger than traded notional figures suggest and that, so far, UMR has only driven a limited further shift towards clearing. Here, as promised, I take a spin through approaches which complement new trade clearing and can also improve OTC uncleared counterparty risk efficiency. Summary […]

KCCP defines the amount of capital that must be held versus default fund contributions at a CCP. The lower the value of KCCP, the lower the overall cost of clearing. CPMI-IOSCO public disclosures show that KCCP has decreased at all of the major CCPs in the past three years. We look at the data and […]

In my previous post Counterparty Risk: Some Way to Go for Derivatives, I concluded that uncleared OTC counterparty risk is bigger than the 80% cleared traded notional volumes might imply.  Of all counterparty risk about two thirds (65%) or more is uncleared and about half (49%) or more is linear delta.  A lot is riding […]

In January 2019, the Basle Committee on Banking Supervision (BCBS) revised the 2016 market risk framework, generally known as the Fundamental Review of the Trading Book (FRTB) to address design and calibration issues and to provide further clarification. One of the topics of interest is an improved criteria for the identification of modellable risk factors […]

Ten years after the Great Financial Crisis of 2008, we may interpret figures such as only 18% of new trades in OTC interest rate derivatives are now uncleared, to mean that  uncleared derivatives now represent a small amount of counterparty risk. However as I will show in this article, this is not true and there […]