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Margin Reform: Non cleared Margins & The ISDA® Variation Margin (VM) Protocol by Sol Steinberg

Margin Reform: Non cleared Margins & The ISDA® 2016 VARIATION MARGIN (VM) PROTOCOLsets out a new and highly complex documentation framework governing regulatory requirements for non-cleared over-the-counter (OTC) derivatives across multiple regulatory systems (e.g.United States (US), Canada, European Union (EU). New regulatory requirements set out new minimum mandatory variation margin requirements (e.g. marked-to-market, eligibility, thresholds, haircuts) that are required to be implemented by non-cleared OTC derivatives counterparties.

The course:

As the deadline for compliance with the new variation margin rules passes – March 1, 2017 – it is important to review new protocols, legal documentation, operational processes and support capabilities. To overcome the hurdles the new rules will create, firms should centralise and automate their workflows. Financial firms with the largest global derivatives portfolios started to exchange initial and variation margin on their non-cleared derivatives from September 1, 2016. Although the initial implementation of the rules went fairly smoothly, one of the most important lessons was that preparation pays off. With variation margin ‘big bang’ looming on the horizon, all financial professionals need to understand these rules in today’s capital markets.

How you will benefit: 

  • Attendees will obtain a clear understanding of the background, regulations, clearing, and the Margin process.
  • Attendees will obtain a clear understanding of how the new Variation Margin framework impacts your operations.
  • Attendees will obtain a clear understanding of the Non Cleared Margin & Variation Margin framework.
  • Attendees will be guided through an overview of the 2016 Credit Support Annex and how it operates in practice. (Not suitable for Lawyers)
  • Attendees will be instructed on key 2016 Credit Support Annex documentation strategies and the Variation Margin Exhibits.

Delegate challenges/Your solutions:

The new rules will create significant operational challenges, and firms need to ensure efficient and automated workflows are in place to overcome them. Resource-intensive and error-prone processes, such as calculations in Excel and communication via email, must become a thing of the past.  Multiple manual data checks and copy-and-pasting of collateral into emails is no longer viable in this new world. Examining your operational capabilities is critical, but what do you need to consider?  Mandatory collateralisation, daily margin call calculation and no thresholds on variation margin will drive up margin call volumes significantly.

As collateral management is a traditionally fragmented and largely manual process, firms need to drive change and establish a new solution that directly responds to the challenges the rules create. Margining is a powerful risk mitigation tool, but its effectiveness is limited if collateralisation is inaccurate. With the new rules in place and with collateral management becoming a regulated part of the business for the first time, the industry is anticipating increased scrutiny of disputes.

The first task is to assess what counterparty relationships, entities and products are in scope. With the new rules applying only to trades executed after a firm’s relevant compliance date, institutions must address both internal and external considerations. For many firms this will involve important changes to derivatives documentation to ensure compliance with the requirements.

Once you have decided how you would like to structure your agreements, it is time to contact your counterparty. Both parties need to negotiate and agree to the structure. If you need to repaper agreements, decide how you wish to proceed: either bilaterally with your counterparty or through a third party mechanism, such as the International Swaps and Derivatives Association variation margin protocol and Isda Amend.  There are guidelines and standard agreement templates available to download, as well as a protocol designed to facilitate the agreement of terms with your counterparties.



  • Implications of G20 findings, Standardization
  • Higher capital requirements
  • Reporting of derivative transactions
  • Derivatives Reforms Across the World
  • BCBS IOSCO Revised Initial Margin Implementation Timelines

Managing Central Counterparty (CCP) Risk and Latest Regulatory Guidance

  • CCP Risk Management Overview
  • CCP Governance
  • CCP Stress Testing
  • Non-Default Losses
  • CCP Resiliency, Recovery and Resolution

OTC derivatives reforms and margins for non-cleared derivatives regulation

  • Regulatory perspective on Category 2 and 3
  • Margin requirements
  • Implications of margins
  • BCBS - US - EU rules compared
  • Key challenges

Margin types and classification

  • Bilateral Initial Margin
  • Margin Transfer
  • Margin Re-Use and Rehypothecation
  • Margin Rehypothecation in BCBS IOSCO
  • Margin Segregation

Initial Margin Calculation Methods

  • Quantitative Initial Margin Model Criteria
  • Portfolio Margining in Initial Margins
  • A netting set in Initial Margin Calculation
  • Margin Period of Risk MPOR
  • Zero Counterparty Risk

Margining and Implementation

  • CSA renewal, Old and new CSA treatment
  • Portfolio segregation
  • Collateral management concepts
  • Permitted collateral for bilateral transactions
  • Margin re-hypothecation

Margin Calculation

  • VM calculation
  • MTM
  • Mark- to-model: model overview
  • Market Data
  • Collateral and settlement Reconciliation, dispute resolution

Internal considerations

  • What agreements are in place with the identified covered counterparties?
  • Which of these agreements meet the new regulatory standards?
  • If you do not have regulatory compliant terms, do you want to amend your existing agreements or sign new agreements to reflect the compliant terms?
  • Can your system and processes manage the dramatic increase in margin call volumes?
  • Can you ensure accuracy when calculating all these amounts?

Internal considerations II

  • Are you able to do this in parallel against any one counterparty, every day?
  • How can you process these calls most efficiently?
  • Increased call volumes, combined with potential earlier notification deadlines and shrinking settlement time frames, may burden firms with higher daily workloads.
  • Is your process taking advantage of potential automation options?
  • How will you connect to electronic messaging networks?

Who should attend?

Professionals from Hedge funds, Asset Managers, Custody agents, Banks, Exchanges, Clearing houses, FCMs, & Financial technology firms

Areas of Business:

  • Market Risk
  • Operations
  • Quants
  • Valuation / Pricing professionals
  • Fixed Income / Rates / Credit Trading Desks members
  • Collateral functions
  • Hedge Fund back office

Trainer biography:

Sol Steinberg is an OTC markets matter expert specializing in risk management, regulation, market structure, collateral, valuation, financial technology systems, and commercialization efforts. During more than 18 years in the banking industry, he has developed an extensive networks of contacts in the asset management, analytic providers, execution venues, regulatory bodies, and government leaders. Sol is a seasoned financial executive who has delivered meaningful industry initiatives such as:

  • Advised governments on Key market structure changes stemming from regulatory initiatives such as Dodd Frank, EMIR, MIFID II: (2015-2017 China, Dubai, Abu Dhabi, Singapore, Mexico, Chile, Ireland)
  • NEEQ stock exchange development in Beijing (2014/5)
  • Development of the London Stock Exchange’s(LSE) SwapClear CCP (2010-2013)
  • Developing CCP2 – a derivative education & certification program for consultancies such as Deloitte and Accenture (2013)
  • Founded Partnerships & Alliances (2011) , managing SwapClear's strategy and relationships with key ecosystem partners including consultancies; execution venues and affirmation platforms; providers of technology systems and services; custodians; hedge fund administrators; data and valuation firms; and selected professional associations
  • London Stock Exchange’s SMART collateral Fintech solution (2011)
  • Fintech valuation solution: Risk Explorer (2008/9)
  • Citi’s Global Market risk system (2005-2008)- the largest VaR engine in the world 2004-2006

Recognizing the financial industry’s desperate need for this kind of expertise, Sol founded OTC Partners in 2013. A boutique value-add firm, OTC Partners provides top tier research, content creation, and business development services to clients of all sizes. As the founding principal of OTC Partners, Sol has become an accepted leader on global clearing issues. In this capacity, he has spoken at dozens of focused events and panels across North America, Europe, Asia, and South America. Most recently in Boston for the Fixed Income leader summit in May of 2017.  Sol’s accomplishments with OTC Partners have also earned him spots on the New York steering committee of PRIMIA (the Professional Risk Managers International Association) and ISDA-FIA (International Swaps and Derivatives Association-Futures Industry Association) working groups. He has also been asked to participate in numerous financial committees and associations including GARP (the Global Association of Risk Professionals), the New York Society of Security Analysis, and the Chartered Financial Analyst Association. Working with these various organizations, Sol has contributed to the OTC industry’s clearing and default management policies for the cleared OTC swap market. He has also contributed to industry standard risk analytics in times of low market rates.

Before founding OTC Partners Sol was a senior executive at LCH.Clearnet, the world’s leading clearing house. While there, he worked on LCH’s default management model enhancements and was part of a group that designed and developed an equitable default management model for SwapClear membership. He also helped develop CCP2, a derivative education & certification program for leading consultancies. Prior to that, was a senior executive at Citco Fund Services, the second largest fund administrator in the world, where he was responsible for market/credit valuation and risk management for five of the 10 biggest global hedge funds. He also helped Citco develop its Risk Explorer risk engine. Before Citco, at Citibank, performing product development, risk management, and valuation for the OTC markets. He also brought to market Citi’s highly sophisticated Global Market Risk System, which was the largest VaR engine in the world from 2004 to 2006.

Sol lives in New York City. He holds a Bachelor of Science degree in Business Administration from Northeastern University. He also holds a Certificate in Risk Management from New York University’s Stern School of Business and has passed the Series 7 and Series 63 exams.