Grygo is the chief content officer for FTF & FTF News.
If your firm has not yet met the September 1 deadline for Phase 6 of the ongoing saga of the Uncleared Margin Rules (UMR), you are probably not reading this blog posting. You will be up to your ears in a gargantuan effort to meet the deadline or to find a legal way to sidestep being in scope for the much-touted reforms.
While most of the vendors and service providers have been more than eager to help financial services firms that are in scope for UMR, I suspect that many firms have missed the deadline because of mismanagement, hubris, procrastination, delusions, or a combination of the aforementioned. Many people in the industry have told me that behind the hype many firms have fallen way behind on meeting the deadline.
This is not a case where the regulators or the vendors were not clear or behind the eight ball – they have been sounding the alarm from the operational mountains for a long time. The regulators even moved the goal post a few times to compensate for regulatory overload and to accommodate the unprecedented challenges of a pandemic.
The bottom line was also clear. If your firm is not in compliance with UMR Phase 6, your firm cannot trade again until it meets the requirements. This is lost revenue and is arguably worse than a fine or penalty for noncompliance although I’m sure those days are coming too.
So, we have to ask: Why is the securities industry putting itself through this ordeal? And what will derivative operations look like once firms get their UMR ducks in a row?
I posed these questions to Chris Walsh, the CEO of Acadia, for a recent FTF News Q&A, “What Does a Post-UMR World Look Like?”
“On day one, you’ll see improvement over what we’ve seen previously. And we’ve already seen operational functions being augmented with risk expertise,” Walsh says. “Then what we’ll see is some of our risk functions will become more operationally aware, and they will be augmented with people who have been operational experts in the company.”
For the longer view, Walsh says “operations, as they are seen today, will at some point cease to exist. Today’s operations will be replaced with a highly analytic team focused on addressing the more substantial risks and substantial exceptions that come out of the process.”
Walsh predicts that “this process will become very ‘exceptions-only’ because the automation that has come into the market, as part of these phases, will be pinpointing the high risks exceptions and resolve them because the right people will be part of the process. It won’t be operations people that then have to pass it on to other functions.”
I think many in the industry are looking forward to seeing if Walsh’s predictions come true.
At the same time, I am wishing good luck to the firms that — for whatever reason — are scrambling to meet the requirements.
The free Walsh Q&A can be found here: https://bit.ly/3SyHrSU
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