Why companies should look again at margin dispute resolution

John Saunders CEO, Operations, Perspectives

Margin calls are expected to soar as the next phase of the Uncleared Margin Rules (UMR) comes into play.

High volumes of margin calls inevitably lead to more disputes.  Some will be simple to resolve, but others will be more laborious, time-critical, and involve a range of counterparties across time zones. And in times of market stress, the pressure on margin teams, control teams and even credit officers intensifies.  In all these cases, Taskize gives you the tools to resolve those disputes rapidly.

Delayed non-centrally cleared margin regulations (UMR) about to come onstream

Amidst the disruption created by the pandemic, the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) last year announced that the final two phases of the UMR would be deferred for a year.  Under the new timing, phase 5 will be implemented in September 2021 and phase 6 in September 2022.

In phase 5, firms with an aggregate average notional amount (AANA) of uncleared derivatives exceeding EUR 50bn will become subject to the initial margin requirements, and in phase 6, firms with an AANA exceeding EUR 8bn will join them.

What does this mean? According to the ICSD, Euroclear, “Phases 5 and 6 will cover some 1100 entities, 315 in phase 5 and 775 in phase 6. And between these entities, there will be some 9,000 separate counterparty relationships, 3,600 covered under phase 5 and an additional 5,400 coming in-scope in phase 6.”

Once the rules are in force, initial margin calls will rise, with hundreds of largely inexperienced firms facing the need to manage them for the first time. This will not only impact those that are newly in-scope, but their counterparties as well.

The role of Taskize in solving margin disputes

Most disputes can, of course, be quickly resolved by the margin teams, but those that can’t represent a cost to firms in terms of the headcount involved and the time they are engaged on the problem. Add this to regulatory requirements to resolve disputes quickly and the inevitability that the volume of margin disputes will rise under UMR, and there is every reason for firms to be as efficient as possible when seeking resolution.

There are three things that underpin the efficiency of any operational process:

  • Involving the right people early on in the process
  • Organising all the relevant data
  • Optimising communications between parties

The right people

To be the right person is not just about having the right skills.  It is also about having sufficient availability and the authority to make whatever decisions are needed.

Internally, in ever-growing and changing operations departments finding the right person (who has all the attributes and is not off sick or on holiday) can be a challenge.  When dealing with external counterparties, the challenge becomes even greater. This is one area where Taskize can help dramatically improve efficiency.

Taskize Smart Directory, a key capability within the Taskize platform, helps you locate the right person immediately.  It learns about the roles and responsibilities in a firm, and its dynamic matching functionality ensures that the work is assigned to the best available person in your firm or your counterparty’s.

Organising the data

At some point in reaching an agreement, parties will have to sit down and work through the data. Whether that is a ‘tick-and-bash’ review of a portfolio or a more fundamental discussion on different valuation approaches, the key to efficient resolution is making sure the data is organised and available to all parties.

Taskize Bubbles are secure workspaces where you can do exactly that. Information can be put in the Bubble where counterparties can work on it together, and experts can be invited in for specific discussions.

Within the Bubble, there is a ‘Blotter’ which gives you the tools to manage the work, showing you which issues have been raised, how they are progressing and when they have been resolved.

Optimising communications

Internally, information may be shared through in-house messaging systems or by email.  Externally email’s ubiquity makes it the default option, but issues of security, integrity, reliability, spam and phishing are major causes of inefficiency in operations processing.

In 2020 we surveyed 100 senior executives at banks and buy-side firms. Respondents stated that using email for operational processes was unfit for managing requests, tracking progress, and reporting to the level they required.

Over the last year, to support home working, many firms replaced legacy application infrastructure with cloud solutions[1], including new best-of-breed portfolio reconciliation systems several of which are already integrated with Taskize.

When a firm’s portfolio reconciliation system identifies a potential margin error, the details can be shared securely via Taskize with the right person at your counterparty, without the need for email. Once this has been done, and the Bubble set up, all the tools for organising and prioritising work between the parties are available.

Of course, in addition to a network of over 300 firms, Taskize handles legacy emails.  Taskize provides a complete solution for working with counterparties.

In summary

  • Margin disputes are an inevitable consequence of increased transactions. When dealing across jurisdictions, different bases for collateral valuations and local regulations that don’t align on in-scope and out-of-scope transactions make resolution more complex and time-consuming.
  • Firms that fail to deal effectively with margin disputes face higher costs and reputational, credit and regulatory risks, therefore efficient resolution is key.
  • Finding the right person in a counterparty organisation is often the first hurdle to overcome and can waste hours of valuable time. Using its proprietary AI, Smart Directory, Taskize locates the best person who available to resolve the dispute.
  • For those on the Taskize network, contact can be made automatically, without the need for email. The service also provides a more effective way to deal with legacy email for those not currently on the network.
  • Taskize provides a secure and structured workplace where you share documents and work together until the problem is resolved.

In the increasingly pressured world of margin disputes, Taskize can be a valuable tool to help your collateral operations teams.  To explore the potential of Taskize for your organisation, request a demo here.

[1] https://www.taskize.com/the-need-for-a-connected-financial-industry/