21 May 2015

金融コンサルタント会社タブ・グループ：金利スワップの中央清算義務の適用で不確実性に直面する運用会社

For CCPs, central clearing is an opportunity to generate new relationships and revenues, but it requires adjustments to existing services and operations as well as the development of new ones.

Buy-side users of OTC derivatives face many uncertainties as they prepare for mandatory central clearing in Europe, a requirement that finally comes into force next year, but which stems from the G20’s 2009 pledge to reduce systemic risk in the market. Initially, the European Market Infrastructure Regulation (EMIR) demands that major clearing brokers must centrally clear a select group of highly liquid interest rate derivatives. But eventually all counterparties must make arrangements to adopt central clearing if they want to carry on using any standardized OTC derivative. 

For asset managers – many of which fall into EMIR’s ‘Category 2’ basket of market participants that must start central clearing derivatives six months after clearing brokers migrate – interest rate swaps (IRSs) are a core risk management tool for bond portfolios, also used for hedging very specific client liabilities as part of liability-driven investment solutions. Ahead of EMIR’s deadlines, asset managers have been assessing the capabilities of clearing brokers, getting to grips with the collateral implications of margin calls by central counterparties (CCPs), selecting account structures to protect clients’ assets and liaising with end-clients such as pension funds to inform them of the cost and risk aspects of the new clearing requirements. 

On top of these complex and challenging tasks, asset managers – along with other users of OTC derivatives – must also come to terms with “frontloading,” a requirement unique to Europe’s approach to migrating from bilateral to central clearing. Because derivatives contracts expire over a variety of maturities, the migration process could lead to some instruments being centrally cleared and others bilaterally, thereby creating an uneven playing field for market participants. 

To ensure that the European market moves swiftly to a centrally cleared environment, EMIR includes the frontloading obligation, which requires bilateral trades entered into before central clearing is introduced to be centrally cleared once the new rules are in force. The rule has proved controversial and has been subject to a series of changes and clarifications over the past 12 months or so. In short, the frontloading period has shrunk, the range of exempt counterparties has increased, and a threshold has been introduced whereby only non-clearing member financial institutions with more than a certain level of derivatives notional outstanding must comply with the requirement. 

Nevertheless, there will be a seven-month period during which ‘Category 2’ asset managers know that any bilateral agreement to enter into an IRS is very likely to result in a central clearing obligation, if the contract has not expired by the time the EMIR clearing mandate comes into force.

For the vast majority of asset managers that have not previously centrally cleared OTC derivatives transactions, the initial response to the incoming EMIR clearing mandate has been to select a clearing broker and a CCP through which to clear. Some firms that already used exchange-traded derivatives turned initially to their futures clearing brokers, but the central clearing of OTC instruments is such new, unchartered territory that many asset managers have found themselves looking for brokers that could demonstrate capabilities and expertise across the OTC and exchange-traded space and across asset classes. 

The advice of clearing brokers is critical to another of the important decisions facing asset managers – that of selecting appropriate account structures. EMIR specifies that as well as existing omnibus account structures that hold the assets of multiple clients of a clearing member, CCPs must offer individually segregated accounts. These are designed to offer maximum protection to asset managers’ clients, such as pension funds whose assets are posted as collateral, thereby funding initial and variation margin payments in support of centrally cleared OTC derivatives transactions.  

From a frontloading perspective, one of the first tasks asset managers need to do is establish whether they trade sufficient volumes of OTC derivatives to be categorized as Category 2 or Category 3 market participants, the latter benefitting from a longer phase-in period. Although Category 2 and 3 firms have different clearing obligation timelines, the frontloading obligation only applies to Category 2 firms.

“To define yourself as Category 2 or 3, you need to calculate your OTC derivative positions – at an individual fund level and not at a group level – over a rolling three-month period to determine if you are over the EUR8 billion notional activity that would determine the fund being regarded as Category 2,” explains Lee McCormack, Clearing Business Development Manager at Nomura. “You also need to work out who you’re trading with, whether they’re going to be classified as 2 or 3, and whether the frontloading obligation applies.” 

Moreover, buy-side firms need to consider the operational and valuation implications of having OTC derivative transactions on their books that fall under the frontloading obligation. Trading a swap on the understanding that it will eventually go for central clearing may have an impact on credit support annexes (CSAs) and discount valuations, with implications for pricing too. 

The number of parties potentially involved and the complexity of the issues raised by frontloading means prompt action is required by asset managers, regardless of the scope for further slippage of regulators’ timelines. “Buy-side firms should be working with their clearing members now to get their trading limits and initial margin limits in place so that they have a lot more certainty that when they trade that product, they will be able to put it into clearing simply,” recommends McCormack.  

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