As a proud sponsor of the 2021 ISDA Annual General Meeting, Transcend attended several sessions at this year’s event. Session topics varied from current challenges such as the Libor Transition to future themes including ESG and collateral transformation.
Throughout the sessions we heard three reoccurring themes that particularly impact collateral practitioners: market volatility, UMR, and digitization and technology. In this article, we highlight these themes along with key takeaways.
Coming out of the COVID-19 pandemic, many are still discussing the market volatility in March 2020 and its impact on operational resources. CCPs were commended for their successful response to the pandemic despite the increase in volume and size of margin calls. However, there was also a need for CCP’s to re-examine their IM models to better reflect underlying risk and establish greater trust through model transparency.
Looking forward, firms should brace themselves for a world of increased market volatility due to the unpredictable effects of climate change. Firms will need to have the tools to support the impact of this volatility such as spikes in volumes, the need for intraday margin calls and the ability to seamlessly manage a crisis.
Uncleared Margin Rules
It came as no surprise that UMR was a common theme at this year’s ISDA Annual General Meeting. Many have evaluated solutions to keep up with the increase in margin calls as well as to simplify the added complexity of phases five and six such as new types of counterparties, new types of collateral, and new arrangements with custodians, e.g. safekeeping and segregation. Clients also need to solve for the cross-border challenges of collateral agreements. Firms must resolve these issues as early in the UMR preparation process as possible to ensure compliance.
Digitization and Technology
Several sessions discussed the application of technology to digitize historically manually processes. Digitization enables greater transparency and interoperability, which is important as firms consider ways that they can more effectively scale collateral processes and respond to real-time requirements. For example, with the growth in collateral requirements as a result of market volatility and UMR, visibility into agreements and schedules, inventory and collateral management across the enterprise is critical to make informed decisions quickly.
As ISDA members look beyond UMR to future requirements and challenges, whether that is continued acceleration in collateral activity or the impact of ESG, Transcend is happy to help firms assess, analyze and optimize their inventory, funding and liquidity requirements. Learn more.