Uncleared margin rules (UMR) for phase 4 and 5 market participants are coming, and service and infrastructure are rolling out a host of solutions to help buy-side firms be prepared. Lawyers are cautioning to start work early and custodians are worried about a rush of last minute requests for help and account set ups. Best practices and guidebooks are plentiful (here’s one from ISDA). We wonder though, how much will UMR help smaller firms, or is this regulation for regulation’s sake?
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The concession already given that firms comfortably below $50m will only have to calculate IM (either grid or SIMM at their choice) but not procure or legally paper custodians and/or set up IM call and delivery infrastructure and formal SIMM backtesting seems to cut out a lot of the work already? Yes there is still work to calculate SIMM or grid IM.
Whether the IM is paid or not, there may be a benefit of creating a common language of counterparty risk which should allow relative comparison of relationships on a transparent basis (which Dodd-Frank has conspicuously failed to do in other initiatives such as SDR reporting). Is this something that has come up in your reading / discussions on the topic?