ing etc, adding all of those things
up and you have the true cost of the
product,” he said.
“If you start to use futures you
have to keep thinking about rolling
them constantly and the administrative burden means it isn’t
staking up right now.”
Coping with collateral management
The onset of the initial and variation margin rules also proved to
be a hot topic for panellists. With
so much hype around the 1 March
deadline and fear that market
participants would not be ready in
time, the process turned out to be a
scramble for the industry.
“A lot of the counterparties we
deal with were really scrambling.
On the operations side, there really
was a scramble on our counter-
party’s side to get the agreements
in place,” said Mark Persiani, vice
president of derivatives operations,
Persiani added that due to
BlackRock’s scale, it was able to
utilise its relationships to push its
counterparties and agree to its new
CSAs in time for 1 March.
That is not to say it is out of the
woods yet. The variation margin
rules are waiting to be implemented in the US, and from January
next year a new set of FX derivatives will fall under the regime,
posing questions for asset managers to trade them.
“The two biggest questions we
really have to answer until after
the New Year is ‘does BlackRock
trade an FX swap or is it a forward
or a spot?’ Right now deliverable
forwards are out of the mix for us,
as we are waiting for the Jan 2018
deadline,” added Persiani.
Another contentious area for
firms is the type of collateral they
hold to meet the new rules. Reg-
ulators have advocated that cash
should be main collateral posted
by firms. That is not as straight
forward for some firms, but new
initiatives from clearing houses
could help ease the burden.
“From a processing point of
view, some [firms] find it easier to
deliver one or the other [cash or
non-cash]. We’re working towards
sweating out the non-cash so you
can keep cash for other essential
purposes,” said Philip Whitehurst,
product development, LCH.
However, asset managers are still
faced with the prospect of different
clearing houses wanting different
forms of collateral. With the increased capital costs for banks holding cash on their balance sheet, this
too has challenged asset managers to
provide the right type of collateral.
Issue 19 TheTradeNews.com 73
[THE TRADE EVENTS]