The final phase in an onerous global regulatory initiative that will require more institutional investors to post collateral for their over-the-counter derivatives transactions will go into effect in September in the U.S., and some of the largest pension funds and asset managers might not be prepared for it, sources said.
"The message we're giving to our clients is if you're subject, you should have been ready already," said Ram Kelkar, Chicago-based principal and managing director of the capital markets group at Milliman Inc. "There is no time left. If you're subject, you need to be acting right now."
Institutions or money managers with more than $8 billion in cumulative uncleared derivatives exposure as defined in the rules will soon be subject to regulations borne out of the 2008 financial crisis. Mr. Kelkar and others are urging clients to assess — and then prepare — if they're governed under the new rules.
In 2015, the Commodity Futures Trading Commission and U.S. banking regulators adopted final rules to implement the Basel Committee on Banking Supervision and the International Organization of Securities Commissions' uncleared margin rules, or UMR. Those rules established requirements for variation margin and initial margin for over-the-counter derivatives not cleared through a central counterparty.
Since 2016, UMR has been phased in, gradually bringing more firms under its requirements. Come Sept. 1, the final phase — phase 6 — will go into effect, lowering the average aggregate notional amount threshold under the regulations to $8 billion from $50 billion.