THRESHOLD BREACH ASSESSMENT SERVICE
Margin Tonic are pleased to announce our new Threshold Breach Assessment, further extendING our end-to-end Initial Margin SERVICES.
BCBS/IOSCO announced in March 2019 that relationships do not need to be operationally-ready to exchange collateral until their exposure breaches the exchange threshold ($50mill at group-level).
With that in mind, the immediate priority for in-scope firms should be on answering two key questions:
Do we have relationships whose exposure will breach the exchange threshold?
If so, when will threshold breaches for those relationships occur?
Only after answering these questions will firms be able to confidently plan out their IM delivery.
Especially important for in-scope firms is to confirm whether they have relationships which will breach the exchange threshold soon after 1st Sept. We call these ‘quick-breach’ relationships.
For firms with quick-breach relationships there is effectively no change to the compliance date, which still stands as 1st Sept or soon after.
Based on Margin Tonic’s Initial Margin deliveries to multiple firms across different phases, we estimate 18 months for new Phase 4 and 5 firms to deliver the full set of front-to-back IT and operational changes.
Hence why we’d strongly advise Phase 5 firms to identify now if they have any quick-breach relationships.
A couple of not always-known points on the exchange threshold….
It’s important that the $50mill threshold is available at group-to-group level, not per CSA. This means that if your firm has 3 x Reg IM CSAs vs Dealer ABC (for different entities, or the same fund managed by different fund managers), then the $50mill may be allocated out to threshold amounts of $15mill per CSA, with a $5mill excess left over. Clearly exposure will hit $15mill far quicker, making a threshold breach more likely.
It’s also important to remember that any exchange threshold is optional, so $50mill is the maximum negotiable threshold amount. For example, dealers may not give the full $50mill group-level threshold to their higher-risk counterparties such as Hedge Funds. Another scenario that would trigger quicker threshold breaches.
THRESHOLD BREACH Assessment
Margin Tonic can now help in-scope firms via our Threshold Breach Assessment service.
We give your firm a single, upfront view across all trading relationships of which will breach threshold and by when, based on detailed analysis, forecast calculations and what-if scenario planning.
But how? Our assessment includes the following components:
Upfront Scope Analysis
Detailed analysis to identify a firm’s in-scope internal entities, trading relationships and products
Generate representative future trade set, based on trading strategy and stress factors
Trade data cleansing - We take away the heavy-lifting from your firm
2. Breach Impact Assessment
Forecast exposure calculations for in-scope relationships, including SIMM & Schedule numbers
Breakdown of forecast exposure calculations by time horizons
Threshold allocations per relationship, based on what-if analysis
Threshold breach timeframes per relationship
Easy-to-understand Client MI
Single, upfront view across all relationships of which will breach the threshold and by when
Ability to plan for compliance with confidence
Protection against unnecessary delivery and associated costs
No need for your firm to resource heavy analysis and data normalisation tasks
margin tonic - END-to-end INITIAL MARGIN SERVICES
Margin Tonic supports a flexible set of end-to-end Initial Margin services, covering calculations, custodian, operations and legal change
We are the industry leaders in defining and delivering the Initial Margin changes
Margin Tonic’s specialists have defined and delivered the Initial Margin changes to multiple firms across different phases, including Tier 1 banks, smaller banks and the buy-side
Click here for more details of our IM services.
Regardless of the stage of your Initial Margin delivery, Margin Tonic is able to help
Feel free to contact us via the form below if you want to learn more, either about our Threshold Breach Assessment or how we could potentially help your firm.