Bloomberg Develops Tool for Initial and Variation Margin Rules

Data giant Bloomberg says it has developed a tool to help global dealers, clearing agents and other investors in the $493 trillion over-the-counter derivatives market with new initial and variation margin rules.

The Basel Committee on Banking Supervision and the International Organization of Securities Commissions have established global standards for margin requirements for non-centrally-cleared derivatives. The standards take effect from September in global markets, including the US and Europe.

The regulation requires firms that engage in non-centrally cleared derivatives to exchange initial margin and variation margin, and defines types of eligible collateral and their respective haircuts for margining.

Bloomberg has developed a data feed, the Collateral Tagging Tool, which classifies more than three million securities under the standards. The company says the tool categorizes securities that are eligible to post to meet a firm's margin obligations in order to help dealers determine the best options for entering or exiting collateral in regions where there are different margining criteria.

"The solution uses a rules engine to determine the applicable level of eligibility for a given security by leveraging Bloomberg's extensive database of reference data," says Chris Casey, the firm's global head of regulatory and reference data.

A dedicated team at Bloomberg maintains the rulesets contained within this engine and the methodology documented and shared with clients "to provide them with the necessary transparency to meet their internal risk and compliance policies," adds Casey. "For further consistency, the classification process for the more than three million active securities that we cover is run on a daily basis to ensure that haircuts and classifications always remain up to date."

Casey concludes that with this tool, Bloomberg is aiming to reduce disruption to clients' workflows. "The solution also offers a way to minimize disputes across the industry by standardizing collateral classifications," he says.