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Apr 12, 2022Insights

UMR Decision Workflow

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  1. Use AANA estimator daily to monitor your risk of getting caught up in UMR
  2. As you get close to the $8 Billion level, begin to work with those counterparties to establish your REG IM CSA documents
  3. Select a Segregation agent to hold your Initial Margin.
    1. Decide which segregation model you will use
      1. Tri-Party
      2. Third-Party (Custody approach)
  4. Negotiate collateral schedule with your counterparty as well as your Segregation agent
  5. Decide which margin methodology you will use
    1. Schedule
    2. SIMM
      1. Internally calculated
      2. Third Party calculation
      3. Counterparty calculated
  6. Decide which margin approach you will use
    1. Distinct- two flows, new IM to segregated account, original House IA to Counterparty.
    2. Allocated- two flows, House IA component to Counterparty, IM component to Segregated Account.
    3. Greater of- One flow, the greater of the calculated IM or IA, posted to the Segregated account
  7. Build the connectivity between your systems, the segregation agent, and the counterparty. As well as a Custodian that safekeeps the portfolio of eligible securities that you will post securities from. This may be a different custodian than the UMR segregation agent.

Advanced workflow is critical to the successful implementation of UMR. It starts with the calculation of the AANA amount and ends with the successful posting of the Regulatory required Initial Margin by each in-scope Portfolio or Legal entity. In some instances, you may be posting collateral to your counterparty, and in some instances, your counterparty may be posting collateral to you.