Buy-side a long-way from meeting VM requirements

Asset managers have barely completed the re-write of collateral exchange agreements for the incoming variation margin rules.

Asset managers are still a long way from rewriting contracts to exchange collateral prior to the onset of variation margin (VM) rules for uncleared derivatives, according to two US buy-side trade associations.

The Securities Industry and Financial Markets Association’s Asset Management Group (SIFMA AMG) and the Investment Adviser Association (IAA), have urged for regulators to grant more time to allow buy-side firms to amend their credit support annexes (CSAs) and comply with the rules.

The associations surveyed 42 asset managers, in which 39 firms said they had completed 10 or fewer regulatory compliant CSAs, while 28 firms said they have completed zero.

They also stated at least 2,800 regulatory compliant CSAs must still be completed to cover existing trading relationships, of which more than half are multi-client “umbrella” agreements.

“The large volume of work…. cannot be completed by the early February deadline imposed to operationalise CSAs. The Associations understand that dealers will not be able to continue trading after 1 March for clients that do not have documents completed by early February,” the Associations said.

The collateral rules, which come into force on 1 March, will require all counterparties, regardless of size or jurisdiction, trading non-cleared derivatives of over $8 billion notionally, to exchange VM on a T+0 basis.

As a result, the amount of counterparty relationships the rules will be exponentially more than the impact of the initial margin rules which began in September last year.

Chris Giancarlo, the acting chairman for the US Commodity Futures Trading Commission (CFTC), said in a speech last week that he will look to ease the onset of the VM rules for firms.

The associations have called for a six-month transition period beginning on 1 March for all counterparties, and provide an additional transition period for FX traders.