Phase six margin cohort may exceed estimates as vol bites

Acadia sees numbers around a third higher than initial count, with fewer set to rely on relief


The sixth and final phase of non-cleared margin rules looks set to be bigger than initial industry estimations, as elevated volatility drags more firms into compliance than originally anticipated.

According to Acadia, which offers margin calculation and reconciliation for in-scope clients, the total number of firms expected to exchange regulatory initial margin within three months of the go-live date on September 1 is a third higher than earlier analysis suggested.

“Back in September, we agreed that 145 number with the dealers for what they felt would be in scope this year and move margin within the first 90 days of September 1. Now we’re talking to the same firms and the number is more like 200,” says Scott Fitzpatrick, chief operating officer at Acadia.

“Volatility has definitely played a role in it, but I do think the number of people in scope is just larger than we expected.”

The majority of newly in-scope firms will be exempt from immediately posting regulatory initial margin thanks to relief which lifts counterparties from compliance where margin exchange amounts are below $50 million. These entities will rely on so-called margin monitoring to ensure they do not breach the threshold with counterparties, which would prevent them from trading.

Firms discovered whether they would be in scope for the final phase of the new requirements at the end of May, after calculating over a three-month period whether they exceeded the $8 billion threshold for aggregate average notional amounts (Aana) of derivatives outstanding.

Estimates from the International Swaps and Derivatives Association suggest this will sweep a total of 775 firms into the regime, compared to around 300 for phase five.

Fitzpatrick says the total number of firms exceeding the Aana threshold is unlikely to be much higher than earlier industry estimates. In part, this reflects the fact that while margin exchange amounts can jump alongside elevated volatility – potentially pushing firms over the exchange threshold more quickly than anticipated – notionals are not affected.

Eduardo Pereira, product manager for Simm at Bloomberg, says the rate of applications for the vendor’s initial margin tools has dramatically outpaced the industry estimate, suggesting the final count of in-scope firms could be higher than first thought.

“I don’t see a ratio of three-to-seven. I see a higher degree of entities. Maybe that is linked to additional volatility – that could be a factor – but it definitely feels [like] we’ve captured more business this year. We’re considerably more active, not just for monitoring but for full collateral management solutions,” says Pereira.

Like earlier implementation waves, many firms sought to manage down their derivatives notionals ahead of the calculation window to avoid the arduous task of negotiating new documentation and setting up segregated margin accounts, required for exchanging.

Yet some of these efforts have been hit by rising volatility. Russia’s invasion of Ukraine sent many markets into a tailspin in February, just ahead of the Aana calculation period, while central banks have aggressively hiked rates to curb soaring inflation. On July 28, the Federal Reserve hiked benchmark rates by 75 basis points – its second three-quarter percentage point rise in as many months – taking the central bank’s cost of borrowing to 2.25–2.5%.

These moves have resulted in an increase in hedging activity. For instance, a depreciation in the Japanese yen earlier this year triggered a scramble for hedges from some buy-side firms, elevating derivatives notionals just ahead of the critical calculation window.

The yen depreciated from 110 to 138 against the dollar over the past year, but during the Aana calculation period alone the currency weakened from 114.83 to 128.74.

“Due to that, cross-currency swaps exposure was impacted for the Aana calculation and unexpectedly captured more firms in phase six,” says an over-the-counter derivatives clearing head at a US bank in Japan.

Some of those which were unable to evade capture may still be relying on the $50 million exchange threshold, or local market equivalents, to avoid having to exchange margin or complete the documentation effort.

“We still see small banks and funds trying to waive phase six by managing their derivatives exposure, mainly from cross-currency swaps, as it’s laborious for them,” adds the OTC derivatives clearing head.

Despite the growth in the number of firms likely to be caught up in regulatory initial margin, the pace of preparations has been slower than anticipated.

While 200 firms have already signed up to Acadia’s margin services, only half of these are fully operational. Many have yet to negotiate the complex documentation requirements, which require new credit support annexes to be agreed with counterparties and the opening of segregated custody accounts – a bottleneck for phase five compliance.

“The number is much bigger than we thought but engagement levels are lower than last year,” says Fitzpatrick.

“At this point we had all the phase five firms very deep in testing and integration and working towards preparing. What we’re finding now is we have some firms operationally ready, but it’s not nearly what we saw in phase five. Some still feel like they’re not going to hit that $50 million threshold on day one and they’ve got a little bit more time, and then there’s some firms that are still trying to assess what the operational impact is and when they have to start getting ready.”

Additional reporting Chris Davis and Bernadette Lee

  • LinkedIn  
  • Save this article
  • Print this page  

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact customer services -, or view our subscription options here:

You are currently unable to copy this content. Please contact [email protected] to find out more.

You need to sign in to use this feature. If you don’t have a FX Markets account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: