LONDON, Feb 9 (IFR) - Quantile Technologies, which recently
partnered with the AcadiaSoft margin hub, has completed its
first large-scale counterparty risk reduction exercises with
swaps dealers, achieving material reductions in initial margin
requirements for participants.
The first runs got underway in mid-January and included
Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP
Morgan, Nomura, RBS, Standard Chartered and UBS.
Quantile’s service aims to reduce risk between market
participants by identifying trades and rebalancing strategies to
reduce margin requirements on uncleared trades including swaps,
options and non-deliverable forwards.
Margin requirements on uncleared swaps trades have surged
since sweeping reforms forced banks to post initial and
variation margin against those exposures. The rules went live in
the US last September and took effect in Europe earlier this
An study from the Bank for International Settlements
suggests that collateral requirements stemming from uncleared
swap margin rules could reach US$1trn.
“Total margin could easily get into the hundreds of billions
over the next couple of years and we think that we could
generate significant savings,” said Stephen O’Connor, chairman
of Quantile. “We continue to believe that savings of up to 50%
are a reasonable target.”
Margin savings stemming from the risk reduction exercises
vary from dealer-to-dealer and from week-to-week depending on
positions. While most dealers run relatively flat books, they
can have long or short exposures with a particular counterparty
at any given time.
Quantile presents clients with daily risk reports and
bi-weekly risk reduction runs that detail a series of trades to
achieve cost savings. Banks then choose whether to enter into
those trades, with early indications suggesting that they are
acting on the information.
"By entering into the risk reduction trades, participants
can reduce margin requirements, saving valuable economic
resources and as a result run their operations more
efficiently,” said O’Connor. “Those cost savings can be
reflected in improved pricing, which also leads
to increased liquidity for end user clients.”
An additional four global banks are expected to join in the
coming weeks and the firm is in talks with large buyside
participants, which will be covered by the new rules in
additional waves out to 2020.
Formed in 2015 by a team of derivatives risk management
professionals, Quantile was added as a premium service on
Acadia’s margin hub late last year. The hub enables market
participants to communicate derivatives exposures and manage
commitments and adjustments between counterparties.
Analysis for the risk reduction exercise is completed using
data that is already being inputted into AcadiaSoft by all 24
tier one banks caught in the first wave of margin rules.
(Reporting by Helen Bartholomew)