Hazeltree, a treasury management solution provider, and HedgeLegal, a specialist in trading document negotiation for the buy side, have collaborated to produce a guide on the final phases of the Uncleared Margin Rules.
The ‘Clearing up the Uncleared Margin Rules’, guide, which was published yesterday, is intended to assist hedge funds and asset managers in gaining a better understanding of their obligations under phases five and six of UMR, which are currently slated for implementation September 2021.
International Swaps and Derivatives Association along with other trade organisations have made relief requests regarding the onset of UMR amid the COVID-19 pandemic, but, there has been no sign (as of yet) that global regulators are inclined to allow any such delay.
Given the current regulatory schedule, it is now critical for every manager to assess whether their funds will be impacted, said Hazeltree.
The paper explains the decisions that managers will need to address when assessing whether their funds fall within the new rules for swap dealers IM and how to prepare for any needed changes.
For example, while the United States Rules will not typically regulate funds directly, they will be indirectly regulated by UMR via their swap dealers who will require their counterparties to comply.
According to the paper, UMR will impact funds in two main ways.
First, swap dealers and funds will both be required to post initial margin (IM) to one another.
Second, IM can no longer be transferred directly between counterparties and re-hypothecated; it must now be held in segregated accounts with an unaffiliated third-party custodian where it cannot be re-hypothecated, insulating it from the risk of counterparty default.
Further, the paper explains that requirements for how IM is to be calculated and the types of collateral that can be used are prescribed by UMR.
While the UMR will only apply to new transactions that are entered into after a certain date, this fact may inconveniently create multiple workflows for managers monitoring their new and legacy transactions.
“The onset of UMR represents a significant and complex event for buy side firms,” said Joseph Spiro, director of product management from Hazeltree. “This guide adds clarity to complicated topics and is a great resource as hedge funds and asset managers consider their impending needs.”
Poseidon Retsinas, founder and CEO of HedgeLegal, added: “HedgeLegal’s expertise in collateral documentation combined with Hazeltree’s expertise in collateral operations made for a great collaboration, the resulting guide covers all the bases.”
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