Citi launches new calculation tool for uncleared margin rules

Citi has leveraged the ISDA SIMM model to launch a new regulatory margin calculation service for buy-side firms that come into scope from 2020 and 2021.

Citi has launched a new regulatory calculation service to aid buy-side firms in their collateral requirements under the uncleared margin rules (UMR).

The new Citi Regulatory Initial Margin Calculation Service will help asset managers, pension funds and insurance companies that will come under into scope of the rules, based on their derivatives volumes threshold, from 1 September 2020 and 2021.

The service will enable buy-side firms to go from estimating their future collateral levels to efficiently monitoring their requirements and operating full daily initial margin calculation and reconciliation. It also leverages the ISDA SIMM model, made possible through a partnership collateral technology vendor, AcadiaSoft.

“There are several key questions that in-scope firms need to address – When will they need to start posting collateral, how much collateral will be required, and how can they optimise collateral and mitigate the cost of compliance?” said Diana Shapiro, North America head of collateral management services, Citi.

“An early and accurate view of the likely initial margin levels will enable clients to plan the scope and scale of work needed to comply with the regulations.”

Citi stated the ad-hoc service estimation or periodic initial margin calculation is based on a regularly supplied trade file and can be applied to existing or hypothetical portfolios for the purposes of simulating their collateral requirements under different scenarios.

Over the past 18 months, the US bank has invested significantly in its collateral management capabilities, which includes the migration to a fully cloud-based architecture.

It is also developing a collateral analytics solution to help clients optimise funding costs, and has a full front-to-back regulatory initial margin offering which includes both collateral and custodial services.

“As firms come into scope of UMR under phases 5 and 6, the additional margin obligations could strain their operational platforms, drain liquidity from their portfolios and increase collateral drag,” said Fergus Pery, Global Head of Collateral Management Services.

“We see this as an opportunity to help our clients understand the growing impact of collateral management on investment performance and to create value by implementing sound practices today.”