A number of financial market infrastructures have come together with some of the biggest global banks in agreement to reduce the number of disputes over margin flows for over-the-counter (OTC) derivatives by developing a new swaps margin utility.
BNP Paribas, UBS, Euroclear, DTCC, Citi and Société Générale are among the major institutions giving backing to the venture, which has been spearheaded by ArcadiaSoft, a US-based technology vendor.
They join a who's who list of already existing investors - Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, State Street, Barclays and ICAP. ICAP are additionally looking to increase their stake in the endeavour. It is a rare display of unity from across the banking world, but the cohesion has had to come about in order to address a regulatory challenge which is affecting the whole industry.
Maurice Tamman, Global Head of Margin and Collateral Operations at Goldman Sachs, has commented on the development of the movement that is now coming to a head. "This is the realisation of an effort initiated by the industry over a year ago to develop centralised margin processing that allows the seamless integration of third-party services into a hub", Mr Tamman said recently.
More stringent measures will come into play in September of next year, ensuring that dealers post more collateral to support their trades and bring down the quantity of credit exposure a counterparty takes on. On the other hand, this had raised worries about the possibility of disputes over how much margin is needed between banks and buy-side firms.
Goldman Sachs set up 'Project Colin' earlier this year only to see the venture fail after the initiatives architect, Paul Christensen, departed in the spring.
Set to replace Project Colin, the new utility will leverage AcadiaSoft's Margin Sphere, its electronic messaging service for OTC derivatives, ICAP TriOptima's triResolve, its trade reconcilliation service, and the Margin Transit Utility operated by the DTCC-Euroclear GlobalCollateral Joint Venture.
Tim Howell, CEO of Euroclear said: "The creation of this new platform reinforces the importance of collaberation across the capital markets to reduce risk, increase transparency and improve operating efficiency for our clients."