There are not one but two speed bumps coming up on the journey towards margining non-cleared OTC derivatives.
The first is the deadline for exchanging initial margin (IM) between the biggest 30-or-so sell-side players. They already exchange variation margin (VM). But IM requires a new margin model, risk sensitivity matching to avoid disputes, connectivity to emerging utilities and other complications. But as the deadline is postponed to September 2016 firms have had more time to adjust.
Hot on the heels of IM is the mandatory exchange of VM from March 2017. This second speed bump introduces whole new client categories to the wonderful world of margining: FCs, NFC+ and possibly NFC-, with all the re-papering that entails, not to mention impacts on STP, liquidity, operations etc. This may have a much bigger impact.
Do you think banks will sail over these speed bumps barely spilling their cappuccino? Or will they scrape the car sills? Or worse, will the exhaust fall off…?