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Sharing the burden

OpenGamma, the open source trading and risk analytics platform, have announced a plan to create an industry-wide utility to facilitate compliance with the (eventually) forthcoming rules on the margining of non-cleared trades. Margin calculations will use the standard initial margin model (SIMM), as amended by each individual user, a reference copy of the open source software will be updated at in line with developments to the underlying standard. The platform has additional functionality in respect of messaging, portfolio reconciliation and dispute resolution. OpenGamma’s CEO Mas Nakamuchi told Risk magazine that the utility’s fee structure and business model is yet to be discussed.

ISDA’s SIMM proposal speaks eloquently to the need for standardisation in the area of margin calculation and collateral exchange. The large increase in collateral transfer for variation margin combined with accelerated performance schedules may all too rapidly result in the mother of all dispute resolutions. It remains to be seen whether the SIMM gains widespread adoption and consequently whether OpenGamma’s own initiative gains traction. If its success is proportionate to the need it would seem to answer, they will join a growing roster of financial industry utilities embracing currently low value-added processes from KYC\AML, to credit-checking to confirmations. As the regulation tsunami continues to break upon the shore, imposing ever-tighter deadlines and consequently shorter links in the STP chain, we should expect to see the emergence of further utility-type structures and subsequent gains in efficiency. It is likely that as the utility ecosystem evolves, the unprecedented market-wide oversight it offers will have far-reaching implications for both regulators and the regulated, creating unforeseen insights and opportunities as well as hastening the decline of legacy businesses.

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