Collateral management specialist CloudMargin has partnered with regulatory consulting services provider Margin Tonic to launch a global Average Aggregated Notional Amount (AANA) calculation service for the latter phases of the Uncleared Margin Rules (UMR). The joint subscription solution automates the AANA calculation for clients using the CloudMargin platform, leveraging Margin Tonic’s expertise in the multi-jurisdictional UMR, helping clients to fine-tune fit-for-purpose trading and compliance strategies.
Firms brought into scope for Phase 5 of UMR – based on their AANA calculations for March, April and May of 2021 – were required to begin exchanging Initial Margin (IM) from September 1 for trading of non-cleared over-the-counter (OTC) derivatives. A much larger group of mainly buy-side firms, estimated at almost 800 firms by the International Swaps & Derivatives Association (ISDA), is expected to fall into scope for Phase 6, which takes effect on September 1, 2022. This follows AANA calculations conducted in March through May of the same year for most jurisdictions. Even for those firms under the threshold ($8 billion in the US or €8 billion in the EU) and not in scope for Phase 6, there is a regulatory need to perform ongoing year-on-year AANA calculations to assess if firms will come into scope any year after September 2022.
CloudMargin and Margin Tonic have been working for some time to help a wide range of firms navigate UMR successfully, among them a number of Phase 5 firms. The joint AANA service further strengthens the two companies’ ongoing collaboration on multiple fronts, including an Initial Margin ‘Health Check’ service and other initiatives.
According to CloudMargin’s Simon Millington, “Calculating AANA is the first step toward determining if an institution is in scope for UMR. Many firms don’t realize that they’ll need to maintain these AANA calculations on an ongoing basis, whether or not they fall into scope for Phase 6. This service offers clients a heightened level of confidence and comfort that they have industry-leading expertise analysing the various nuances of regulatory jurisdictions and complex factors, combined with a robust technology solution providing accurate AANA calculations they can track over time with automated reporting. They can also choose to work with us to automate and optimise their entire collateral workflow as desired, if and when they exceed the threshold.”
Chris Watts, Co-Founder of Margin Tonic, says “We have performed and advised on AANA calculations across multiple UMR phases, for a variety of different firms and set-ups. Having early and ongoing clarity on AANA status ensures that firms can prepare for compliance with confidence, for the heavy front-to-back changes. Too often, we have seen firms perform AANA calculations too late, or not regularly enough, causing a rush to compliance with unfit solutions and high compliance risk, with the potential to impact their ability to trade. By introducing the joint AANA service with our partners at CloudMargin, we provide an AANA one-stop-shop, combining our industry-leading advice with their best-in-class technology. In turn, we will remove AANA burden for our clients, allowing them to focus on key decisions, either for compliance readiness or for trading adjustments to remain out of scope entirely.”
AANA calculation rules can be complex, with product scope and calculation methods varying by jurisdiction. Firms also often encounter AANA challenges such as consolidation of data from multiple trade sources, lack of AANA regulatory guidance and unclear treatment of funds, including multi-manager funds. In addition, trading volumes and products will also change over time, meaning that AANA calculations should be performed regularly and on an ongoing basis. A proactive monitoring approach ensures firms will have full readiness in place, with no late surprises on their AANA results and rushed compliance solutions.
The combined AANA calculation service aims to address these issues through five core service components. These are Regulatory Profiling; Upfront AANA Calculation; Ongoing AANA Calculations; AANA Alerts and Dynamic Reporting; Expertise-Led Advice; and Breach Safety Net. CloudMargin recently announced that in order to facilitate clients’ preparedness for UMR in Phases 5 and 6, it is now connected to nearly 60 custodians globally for cash, securities and third-party Swift settlement, in addition to its long-established Swift connectivity to the four major triparty agents.
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