Europe’s asset management firms are preparing for the growth of trading in centrally cleared OTC derivatives by improving their collateral management and counterparty risk controls.
Mandated by the European Commission in line with member states’ G20 commitments, the pending European market infrastructure regulation (EMIR) will require OTC derivatives to be standardised so that they can be centrally cleared, traded on exchange-like trading platforms and reported to newly-created data repositories.
To prepare for the new trading landscape, Dutch asset manager Kempen Capital Management has chosen to automate its collateral management for OTC derivatives by installing an in-house solution from post-trade services firm Omgeo.
“The collateral needed to cover OTC derivatives trades will become an increasingly important operational function,” said Martin Loxley, director of collateral management at Omgeo. “Firms that are thinking pragmatically are already looking to enhance their control over the process. By automating collateral management processing for OTC derivatives trades, users take advantage of a more scalable operation that is capable of future growth and expansion to additional asset classes.”
Omgeo ProtoColl is a product that is intended to give clients insight into their firms' exposures and risk profiles. It provides collateral and margin management workflow solutions for clients to identify, negotiate and satisfy daily margin calls. The product handles OTC and exchange-traded derivatives, repos, securities lending, leveraged trading, emerging markets and loan facilities.
The European Commission has until the end of December to approve the EMIR rules for use from the start of 2013, as per guidelines by the G20.
Accompanying regulation to MiFID II introduces in Europe an obligation to trade clearing-eligible and “sufficiently liquid” derivatives contracts on exchanges, multilateral trading facilities (MTFs), or the newly-created category of organised trading facilities. MiFID II is currently under review by the European Parliament. Implementation of the legislation is expected in 2014.