Asset Managers to Use E-Margin Call Service
Bluebay Asset Management, Cheyne Asset Management and Goldman Sachs Asset Management have signed up to use an automated margin call service operated by privately-held AcadiaSoft.
Two of the three fund managers are already live on AcadiaSoft's MarginSphere while the third one will go live shortly, according to AcadiaSoft which would not elaborate.
Deutsche Bank, Goldman Sachs, HSBC and JP Morgan were among the broker-dealers which AcadiaSoft said started using MarginSphere last year. "Counterparty credit risk has emerged as one of the most pressing issues amongst market participants, regulators, rating agencies and lawmakers," says Craig Welch, co-founder and chief executive officer of AcadiaSoft located in Boston and London. "As a result, firms have embraced collateral management as the standard for risk mitigation and are therefore demanding increased efficiency and transparency in this area."
Using MarginSphere, financial firms can view their collateral exposures online and make the necessary adjustments through margin calls. Users can send and confirm margin calls using message formats and a workflow process developed by the International Swaps and Derivatives Association instead of through email, fax and phone -- an error-prone process. Firms can also reduce the time it takes to make a margin call from several hours to a few minutes. Users can link directly to AcadiaSoft using a browser provided by AcadiaSoft, file transfer or an API.
Bluebay Asset Management, Cheyne Asset Management and Goldman Sachs Asset Management are the first fund managers to connect to MarginSphere directly. Others are doing so either through their fund administrators, including State Street, or MarkitServ, a swaps valuation and post-trade processing firm.
AcadiaSoft charges fees on a transaction basis with volume discounts. The fees are paid only by "initiators" of margin calls, so brokers are likely to be footing most of the bill regardless of the number of messages returned by a buy-side counterparty, says Welch. He estimates that about two-thirds of margin calls are started by broker-dealers. Margin calls typically reflect communications sent by firms to counterparties that they need to put up additional collateral to back a deal.
The need for automated margin call messages and workflows became apparent after the collapse of Bear Stearns, the bankruptcy of Lehman Brothers and the bailout of AIG when market players realized the importance of managing the risk of counterparty failures. The trend will become even more significant now that regulators are requiring central clearing of swap contracts. Financial firms might have needed to address only a handful of margin calls a week when dealing with transactions which are processed bilaterally -- but they will be subject to an exponential growth in the number they must handle when the trades are cleared through clearinghouses. And they will have to deal with them in close to real-time rather than a few hours or even days later.
Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com)
