Neil Murphy is Business Manager at TriOptima’s triResolve.

What were the key theme(s) for your business in 2019?

A central priority for TriOptima in 2019 was to assist the industry in meeting the on-going compliance obligations around the uncleared margin rules (UMR). Phase 4 (Sep 2019) of the rules saw increased demand for our holistic solution, with newly in-scope firms requiring more vendor assistance than firms in earlier phases, particularly with respect to calculation of sensitivities and back-testing. For those firms yet to come into scope, the early part of 2019 saw firms focus on UMR education to ensure they fully understood the scope and impact of the rules.

Recently, these firms have focused on preparing for phase 5/6 delivery. From a calculation perspective, we have been helping firms prepare by calculating their Initial Margin (via SIMM/Schedule) across their relationships and by estimating the potential time to breach IM thresholds. From an operational point of view, we have helped firms prepare by allowing them to test our complete UMR solution for free. The early deployment of triResolve Margin has provided immediate gains for clients margin operations thus removing one key milestone for UMR delivery.

What trends are getting underway that people may not know about but will be important?
Since the emergence of the UMR, firms had initially focused on the IM calculation element of the rules. However, recently there has been increased focus on the need for IM reconciliation. This trend first started with phase 1 firms and it has become central to their day-to-day operational management of IM, with reconciliation of IM exposure necessary to provide the required level of transparency. Firms focused on UMR delivery for later phases have become aware of this and need to ensure they consider IM reconciliation – both from an operational and technology perspective – as a key part of their project from Day 1.

As IM exposure has increased for those firms already in-scope, many firms have turned to IM optimization as a tool to efficiently reduce the overall level of exposure. While the funding impact of IM compliance may be estimated as smaller for phase 5/6 UMR firms (meaning that optimization may be less of a day 1 requirement), this emerging trend coupled with how to best reduce IM will continue to keep portfolio managers awake at night as we move into 2020.

What are your customer’s pain points and how have they changed from a year ago?
Earlier phases of UMR compliance saw dealer firms manage much of the IM technology challenge in-house. Phase 4 brought smaller firms in-scope, and with that a change in relative pain points. While IM reconciliation may have been the critical challenge in earlier phases, smaller newly in-scope firms were challenged with delivery of even the basic foundations of the SIMM methodology, namely sensitivity calculation. With more and more smaller firms coming into scope, we anticipate this will continue to be a key industry challenge going forward.

With more buy-side firms impacted by the upcoming phases of UMR, we see new challenges facing those firms who today post independent amounts to their dealers, and who going forward will need to balance this obligation alongside new regulatory requirements to post initial margin. To date, there is no industry consistency, and firms see challenges associated with negotiation of new legal documents and putting in place the right systems to support multiple methodologies.

Outside of the UMR challenge, back-office and risk teams are continually looking at how they can reduce data inconsistencies between their internal systems, clients and industry platforms, and reconciliation continues to be a pain point. With OTC reconciliation largely ‘solved’ for most firms via triResolve, we see many firms looking to apply the same approach to other products, and upcoming trade reporting requirements for securities finance transactions under SFTR will only increase this need more.