SGX to launch uncleared margin rules service

Singapore Exchange (SGX) is to launch an uncleared margin rules (UMR) service for market participants to allow them time to reduce their average aggregated notional amount (AANA) and delay falling into scope.

“UMR will inevitably increase the cost burden for many of our clients,” KC Lam, head of FX and rates at SGX, said in a statement on Wednesday. “By September 2022, more than a thousand firms will be impacted by UMR, thus it is important to start planning for it now.

“SGX’s FX Futures, including FlexC FX Futures, that are traded and cleared on exchange was our first solution offered to clients to help them manage UMR.

“We are now taking a step further by assisting them to take steps to lower their AANA, simply by understanding how they can alter the balance of exchange-traded and non-centrally cleared products within their portfolios.”

The exchange is offering the free service in partnership with margin analytics provider Cassini Systems. “Once a SGX market participant provides us with information on its over-the-counter positions, we will work with Cassini to turn around a timely and comprehensive analysis,” KC Lam said.

The analyses will be used to help firms assess their status, adjust their positions and look for alternatives to certain non-cleared products if they have the potential to fall into fifth phase of UMR, which would require then to comply a year earlier than Phase 6 firms.

Entities with an AANA of non-centrally cleared derivatives between $8 billion (£6.09bn) and $50bn fall into the final, sixth phase of UMR and must implement the rules by September 1, 2022. But firms with an AANA greater than $50bn fall into the earlier fifth phase and must comply from September 1, 2021.

As the three-month period for determining in-scope status for Phase 5 falls in March, April and May of next year, SGX and Cassini said they are offering the service early. This aims to give firms that could meet the $50 billion AANA threshold, including banks, asset managers, hedge funds and pension funds, enough time to make adjustments.

The three-month calculation period for Phase 6 is also set for next year, in June, July and August.

Cassini Systems, which plans to grow its client base in the Asia Pacific region after opening an office in Sydney, urged firms not to wait until it is too late.

“Those firms that conceivably could fall in scope for Phase 5 should immediately begin efforts to understand their AANA and strategise on how they might identify opportunities to re-allocate their portfolio, reduce their margin obligations to potentially achieve substantial cost savings and delay falling in scope while still meeting their trading goals,” he said.

In June, SGX told Global Investor that part of the reason for its acquisition of cloud-based currency trading platform BidFX was to capture firms in Phase 5 of UMR.