Embed Size (px)
Citation preview
Axiom / OTC Space Webinar
Thursday, 9th Feb. 2017
Uncleared MarginRemediation: State of the Market at T-3 weeks
Today’s Topics:
1. Where the market is today
2. Negotiation trends
3. What to expect over the coming weeks
4. Options to mitigate the challenge
300+ project management, contracts negotiation and operations
specialists delivering uncleared margin remediation-related
outreach and negotiaton services for 22 buy- and sell-side
institutions, including 17 of top 25 global broker dealers
3
Our Panelists:
Bill Hodgson
Founder, OTC Space
Brendan Nelson
VP, Banking Solutions at
Axiom
Barry Quinn
SVP & Co-Head, Global
Banking Practice at Axiom
Kurt Crommelin
Head of Legal, Financial
Markets for Europe at
Standard Chartered Bank
Gerard de Lambilly
Global Head of Legal
Prime & Securities
Services and Master
Agreements at SOCIETE
GENERALE
4
Market as a whole
is behind plan.
Protocol uptake far lower than anticipated.
1.
2.
I. Very low initial counterparty engagement (10-20%)
II. ~ 70-90% of negotiations now in-flight
III. Current remediation levels typically <5% of counterparty scope
IV. Mar. 1 targets adjusted significantly downward: 40-60% completion generally expected (can be much lower for some firms, especially larger dealers focusing on higher value counterparties)
Where the Market is Today
5
I. Some initially expected 60-80% through Protocol; actual CP preference closer to 15-25%
II. Frustrations with Protocol challenges: scope of capabilities; operational efficiency
III. Firms actively changing negotiation strategy as result: 70-90% of volumes now expected to be bilateral
Where the Market is Today
Market as a whole
is behind plan.
Protocol uptake far lower than anticipated.
1.
2.
6
Where the Market is Today
Market as a whole
is behind plan.
Protocol uptake far lower than anticipated.
1.
2.
On current course and speed, there
are simply not enough derivatives
negotiator man-hours left in the
market to meet the March 1st
deadline for all CP relationships
7
Where the Market is Today
Market as a whole
is behind plan.
Protocol uptake far lower than anticipated.
1.
2.
POLL
QUESTION
What percentage of
your counterparty
relationships do you
expect to have
remediated by Mar. 1?
8
Where the Market is Today
Market as a whole
is behind plan.
Protocol uptake far lower than anticipated.
1.
2.
POLL
ANSWER
9
Negotiation Trends
I. Protocol vs. bilateral negotiations
II. ‘New CSA’ vs. ‘Amend’
III. Openness to negotiations
IV. Early implementation
1.
2.
Fragmented initial approach
to the challenge…
... and now a consistent trend
away from standardization.
10
1.
2. I. Growing share of ‘Amend’
II. Move away from super-compliant standards
III. Limited influence of Protocol defaults
Negotiation Trends
Fragmented initial approach
to the challenge…
... and now a consistent trend
away from standardization.
11
1.
2.
Negotiation Trends
Fragmented initial approach
to the challenge…
... and now a consistent trend
away from standardization.
Firms confronted with very different
approaches, and generally little term
standardization, increasing the
likelihood, scope and length of
negotiations.
12
1.
2.
Negotiation Trends
Limited consistency in approaching
the challenge…
... and now a consistent trend
away from standardization.
POLL
QUESTION
What percentage of
your VM negotiations
do you expect to
address via amendment
(vs. a new CSA)?
13
Where the Market is Today
Market as a whole
is behind plan.
Protocol uptake far lower than anticipated.
1.
2.
POLL
ANSWER
14
I. Dramatically increased staffing levels:
• Re-dedicated internal resources, including from BAU
• Reliance on 3rd parties: solutions providers, law firms, temp staffing
II. But market for SMEs now ~tapped out (and onboarding time negates impact)
All hands on deck.
Hoping for silver linings, but expecting
thunderclouds.
1.
2.
What to Expect Over the Coming Weeks
15
I. Pressure on and from all stakeholders will mount, underlining the need for effective communications
II. Hope that negotiations will accelerate as deadline nears
III. Resulting heightened concerns about data capture/systems readiness
IV. Growing calls for regulatory relief, but no one taking the foot off the gas
What to Expect Over the Coming Weeks
All hands on deck.
Hoping for silver linings, but expecting
thunderclouds.
1.
2.
16
What to Expect Over the Coming Weeks
All hands on deck.
Hoping for silver linings, but expecting
thunderclouds.
1.
2.
Plans at this stage should be partly
about making better use of existing
resources ahead of Mar. 1, but also
about how outstanding negotiations
will be addressed after the deadline
and how best to communicate this
within and outside the organization
17
Ensure optimal resource allocation
Increase scalability of negotiations
Mitigate post –Mar. 1 economic
impact
1.
2.
3.
I. Revised CP segmentation strategies
II. Fewer negotiations allowed to move beyond pre-approved language
III. Updated terms acceptance standards
IV. Effective/ responsive collaboration model with key internal stakeholders beyond negotiation teams
Options to Mitigate the Challenge
18
Ensure optimal resource allocation
Increase scalability of negotiations
Mitigate post –Mar. 1 economic
impact
1.
2.
3.
I. Use of pre-approvals
II. Fast-track process for “close to the goal line” negotiations
III. Open communications with CPs on tradeoffs
Options to Mitigate the Challenge
19
Ensure optimal resource allocation
Increase scalability of negotiations
Mitigate post –Mar. 1 economic
impact
1.
2.
3. I. Thoroughly vet mechanisms to prevent unauthorized trading post Mar. 1
II. Selectively implement ‘stop-gap’ compliant CSAs
Options to Mitigate the Challenge
20
Increase scalability of negotiations
Ensure optimal resource allocation
Mitigate post –Mar. 1 economic
impact
1.
2.
3.
Options to Mitigate the Challenge
Limited time left means there are
no silver bullets –but ‘no regrets’
steps exist that firms can take to
improve Mar. 1st prospects
Thank you.
