The final phases 5 and 6 of the so-called uncleared margin rules (UMR) are coming into effect on 1 September of 2021 and 2022, respectively. An article by DTCC looks at the large impact it will have in the Asia Pacific region.

3,000 new counterparty relationships for exchange of initial margin (IM) will need to be established as phase 5 of the so-called uncleared-margin rules (UMR) come into effect on 1 September this year – and then as many as 6,000 more relationships with the final phase 6 on 1 September 2022, all according to cited data from the International Swaps and Derivatives Association, ISDA.

A web article by DTCC reports from the company’s recent annual Asia Pacific Collateral Management Forum where an industry-expert panel discussed the challenges facing the approximately 1,100 entities which come into the scope of the rules with the launches of phases 5 and 6.

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What will domestic securities be worth?

“The mandate will extend its reach to new markets in Asia Pacific, including Malaysia, South Korea, Taiwan, Thailand, and the Philippines,” DTCC’s head of collateral sales for Asia Pacific, Purtini Joshi, observed.

“Domestic collateral givers in these markets will be looking to maximize the utilization of local securities and government bonds to meet the HQLA (stock of high-quality liquid assets) criteria. … From the global collateral taker’s perspective – typically offshore global dealers, they will be considering how to accept these securities as collateral. Aside from domestic legal nuances concerning creation of security interest on local collateral, there are also operational challenges to address,” she said.

New processes required

One panelist was O’Delle Burke, APAC-region head of collateral services and product innovation at JP Morgan, who pointed out that affected entitles in the final phases will have to find solutions for IM calculation whereas entitles in previous phases had in-house capability to calculate the margin to be posted.

“We will be seeing more local custodians in markets like Taiwan – instead of European and US custodians which was the case in the past – getting involved. This essentially means that changes in areas like review process, operational set-up, etc., will have to be carried out ahead of compliance date,” he said.