Web-based collateral and margin management solutions provider CloudMargin announced a partnership with SmartDX, a developer of smart contracts for the Capital Markets community owned by Smart Communications.
The agreement addresses the Daily Variation Margin (VM) Rule that goes into effect March 1, 2017, in most jurisdictions, including the European Union, United Kingdom, and the United States of America. Some global regulators have offered grace periods for enforcement of the rule, but all market participants must show progress toward compliance regardless.
The partnership between the two firms developed an offering that enables buy-side investors and other OTC derivatives market participants to sign new ISDA Documentation or “re-paper” their OTC agreements with existing or new counterparties through SmartDX, and then use the CloudMargin’s collateral management workflow tool to deal with the operational data, expected to increase in volume due to the new Daily Variation Margin (VM) rules. According to CloudMargin, firms’ collateral activity might increase by 500 percent.
“Despite the VM rule taking effect on Wednesday, only a small percentage of market participants have put in place a plan or the tools needed to post daily variation margin. But their operations workload and processes are about to change forever. The connectivity between CloudMargin and SmartDX provides buy-side firms and other swap market participants the ability to seamlessly and cost-effectively negotiate their agreements to become regulatory compliant, then on an ongoing basis, automate the process and easily manage the increased operational challenges”, said Lee McCormack, Head of Strategy and Product Development at CloudMargin. “We are thrilled to work with SmartDX, which has a similar philosophy to ours in its focus on providing solutions to clients’ problems by offering better processes delivered through a cloud-based SaaS product”, he added.
Robin Moody, Global Head at SmartDX, said: “While the industry has made a lot of investment into the legal teams processing the updated documentation, that only solves part of the problem, namely, the legal side. The operational challenge of implementing these changes is very difficult at this scale unless you can use technology to better manage processes, documents and ultimately the data in those documents”.
“By adopting SmartDX and CloudMargin, market participants can show the regulators they are putting forth best efforts and directly solve the operational challenge of VM rules compliance. The integration with CloudMargin was an obvious next step for us, and we are very pleased that we could move so quickly to meet the industry’s needs now and also for the business-as-usual process after the deadline”, Mr Moody concluded.
SmartDX’s library of templates is configurable to all needs and OTC market participants can use them to repaper their CSA agreements, use the cloud-based offering to collaborate on negotiated points and feed the agreements into industry utilities such as IHS Markit’s CounterParty Manager.
The partnership between SmartDX and CloudMargin gives users a solution that expedites repapering all the way to the automation of the variation margin calls with no risk of manual error in re-keying of data.