CloudMargin and SmartDX offer a lifeline for OTC derivatives rewrites
Fintech firm CloudMargin and smart communications firm SmartDX have agreed to a deal to enable buy-side derivatives traders to rewrite their OTC agreements. Traders will be able to sign new ISDA documentation for uncleared initiatives through SmartDX, which offers automated trade relationship documents, before passing the data to the collateral management workflow tool from CloudMargin. The new offering will make regulatory compliance cost effective and easier to manage, as stricter rules are enforced from 1 March 2017 to make market participants exchange variation margins on a T+0 basis.
FinTech firm CloudMargin and SmartDx have partnered to allow buy-side derivatives traders to repaper their OTC agreements, with impending collateral rules set to come into force on 1 March.

The offering will allow traders to sign new ISDA Documentation for their uncleared derivatives through SmartDX, an automated trade relationship document solution, and then pass the operational data to CloudMargin’s collateral management workflow tool.

“Only a small percentage of market participants have put in place a plan or the tools needed to post daily variation margin. But their operations workload and processes are about to change forever,” said Lee McCormack, head of strategy and product development, CloudMargin.

“The connectivity between CloudMargin and SmartDX provides buy-side firms and other swap market participants the ability to seamlessly and cost-effectively negotiate their agreements to become regulatory compliant, then on an ongoing basis, automate the process and easily manage the increased operational challenges.”

Stricter rules on trading derivatives come into force globally on 1 March, requiring market participants to exchange variation margin on a T+0 basis.

As a result, the amount of counterparty relationships caused by the rules will be exponentially more than the impact of the initial margin rules which began in September last year. CloudMargin predicts the variation margin rules will increase firms’ collateral activity by 500%.

“While the industry has made a lot of investment into the legal teams processing the updated documentation, that only solves part of the problem, namely, the legal side. The operational challenge of implementing these changes is very difficult at this scale unless you can use technology to better manage processes, documents and ultimately the data in those documents,” added Robin Moody, global head of SmartDX.

Earlier this month, the US CFTC delayed implementing the rules for end-users by six months, prompting hope that other regulators would make a similar decision. However last week the European Securities and Markets Authority (ESMA) reaffirmed the rules will come into force on 1 March.