Initial Margin (IM) has a long history in the exchange-traded derivative markets, as derivative exchanges have required members to post up-front collateral (IM) and ongoing maintenance margin (variation margin, VM) for decades. However, in the post-financial crisis world, IM is becoming increasingly important for bilateral and centrally cleared derivative markets, as regulators strive to reduce systemic risk in the global OTC markets.

Regulators are forcing more and more OTC derivatives to be cleared through central clearing counterparties (CCPs) by imposing onerous capital charges, and as such these derivatives are subject to IM requirements as a way to mitigate counterparty risk for CCPs. However regulators’ next step is to require posting of IM for bilateral non-cleared trades, which means that many more OTC derivatives will likely be subject to new IM requirements.

But many OTC derivative participants are experiencing challenges with this shift in margining practices, and IM methodologies are not currently standardized across the market – yet. For firms who are unaccustomed to posting IM, which IM methodology should they use for pre-trade decision-making and collateral optimization, or to verify post-trade calculations from CCPs or bilateral counterparties? How will IM affect their derivative business’ costs and processes?

On Thursday, October 2nd featured speaker Dennis Sadak, CFA, VP Product Management, Head of Risk, at Numerix described Initial Margin’s role in the OTC derivative markets and its impact on market participants, as well as upcoming changes for bilateral uncleared trades.

Mr. Sadak covered:

  • Primer on Initial Margin (IM)
  • Central clearing and the costs of doing business
    • IM impact on different participants
    • Walk through trade lifecycle
  • Methodologies for calculating IM
    • VaR-based
    • Scenario-based
  • Recent developments – IM for bilateral uncleared trades
To view the on-demand webinar, just register on the right side of this page.

Featured Speakers:

Dennis Sadak, CFA, VP Product Management, Head of Risk, Numerix
Mr. Sadak is Vice President of Product Management for Numerix, overseeing risk analytics including stress testing, VaR, and market risk. Prior to Numerix, he held several positions at MetLife, a global insurance company, including Portfolio Management and Derivatives Trading. At MetLife, he implemented numerous derivatives overlay strategies for their General Account portfolio and built out pricing and risk analytics for active derivatives hedging of their Variable Annuity program. Mr. Sadak earned a dual degree in Mathematics and Finance from Rutgers University and is a CFA charter holder.

Moderator: Greg Murray, VP Product Marketing, Numerix
Mr. Murray oversees product marketing for Numerix, with responsibilities including go-to-market strategy and marketing collateral development for Numerix’s derivative pricing and risk analytics. He has worked in the derivative markets in various asset classes since 1994, holding a variety of roles including options market-making, proprietary trading, and derivative technology sales.

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