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Margin Xchange…we hardly knew you

Highlander 1986, “There can be only one!” or for a younger generation, “When you play the game of thrones, you win or die”. Risk magazine reports that MarginXchange (MX) has retired from the fray, leaving an open (if depleted) field for its erstwhile rival ISDACreate (IC). MX was established by the triumvirate of Allen & Overy, IHSMarkit and SmartDX; IC is equally titanic (in the giant rather than doomed ship sense), backed by ISDA and Linklaters.

The intention of both was to facilitate IM phase 5 negotiation and subsequent data upload. Until the two-pronged BCBS-IOSCO mitigation recommendations delayed and more than decimated the Phase 5 population, the market was facing the near-impossible task of instantiating IM arrangements for over ten times the IM volume seen to date. The two platforms offered a tech’ solution, promising streamlined negotiation, enhanced audit functionality and near straight-through-processing of legal and collateral data. In our experience, even at this early stage of development, these promises were largely delivered. Despite this rare coincidence of advertising with reality, neither platform has fully succeeded in transforming the time needed to negotiate the intricacies of IM. Perhaps hampered by a wish to avoid the automation associated with the earlier VM MarginMatrix, and conscious of legal technophobia, both platforms attempted to faithfully reproduce the bilateral experience- success on this front perhaps implies that they have little to add to the core task. A number of Phase 4 counterparties trialling the platforms ended up reverting to traditional document exchange. Both platforms had similar capabilities and deficiencies, IC only included collateral capability in a later iteration, MX was hampered by forcing users to agree collateral schedules at the initial term sheet exchange stage. Although both were offered free to the buyside, the decisive differentiator was price, MX was estimated to cost roughly twice that of its rival. 

ISDACreate has always been explicit that the intention has always been to expand the IM platform to embrace at least the full suite of ISDA documentation and perhaps beyond. Even in their 1.x version, both platforms offered real advantages over traditional bilateral by focussing on the end data product. As the remaining platform is extended beyond the IM test bed, widespread adoption seems inevitable, if perhaps slower than hoped for. It is in this context, that the lack of an alternative is a cause for regret. Technology tends toward winner takes all, but the race had barely begun.

“Remember, building robots is extremely dangerous and should not be attempted without great care…..” – safety disclaimer to TV’s Robot Wars”.

Nick Railton-Edwards

Head of Research

20 St. Dunstan’s Hill, London, EC3R 8HL

W  E  T +44 (0)20 3597 5979

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