Allen & Overy and Deloitte tackle OTC derivatives market challenge
13 June 2016
Allen & Overy today announces the launch of MarginMatrix™, a new digital derivatives compliance system to help major banks deal with new regulatory requirements that will come into force for the USD500 trillion over-the-counter (OTC) derivatives market from 1 September 2016. The system is being deployed as an end-to-end managed service in collaboration with Deloitte, the professional services firm, which will manage and resource the client outreach and counterparty negotiation process.
Uncleared OTC derivatives are now subject to margin rules under the European Market Infrastructure Regulation (EMIR). This means all counterparties to derivatives contracts, which are not cleared through an authorised clearing system, will have to provide additional margin for their net exposures. Studies estimate a typical major bank dealing derivatives will be required to provide approximately USD10 billion in initial margin alongside new and complex documentation. Failure to do so would result in a prohibition from trading with certain counterparties as well as sanctions and reputational damage.
In the first major collaboration between an international legal practice and one of the ‘Big Four’ professional services firms, technology created by Allen & Overy is being supported by Deloitte, which brings a disciplined, process-driven approach to the product.
MarginMatrix™ codifies the laws in various jurisdictions and automates the drafting of tailored documents based on an automated legal analysis. Where one document would normally take three lawyer hours to complete manually, MarginMatrix™ can deliver this in three minutes. Using the system, the time taken to manually handle the 10,000 contracts on average that any major bank holds can be reduced from over 15 years in lawyer hours to just 12 weeks.*
The system also alleviates logistical challenges, removing the need for clients to appoint and project manage separate legal, technology and resourcing providers across the U.S., EU and Asia Pacific.
David Wakeling, derivatives partner at Allen & Overy, commented: “The repapering exercise was always going to be a massive challenge. It seems that the regulators are now more disjointed, with the EU moving at a different speed to other jurisdictions such as the U.S. It’s a development which will be extremely difficult for derivatives market participants to manage, both at a documentation and operational level. We see MarginMatrix™ as a game changer for people operating in this space. It will relieve some of the pressure and also reduce the possibility of a non-compliant outcome. It’s an example of what can be achieved when market, legal and technology expertise are combined.”
Hugo Morris, partner at Deloitte, commented: “Together Deloitte’s market leading managed service practice and Allen & Overy’s pre-eminent derivatives practice will provide a powerful solution for the regulatory challenges relating to OTC derivatives. MarginMatrix™’s ability to codify the law across multiple jurisdictions, auto-draft contracts and provide a controlled workflow environment for contract negotiations will lead to significant cost savings and help maximise institutions’ ability to achieve regulatory compliance.”
Wim Dejonghe, senior partner at Allen & Overy, commented: “MarginMatrix™ is an excellent example of the way in which we are evolving our offering in the face of changing client needs. We foster a culture of entrepreneurialism and calculated risk-taking, which enables our partners to generate and deliver market leading initiatives like this one and solve the most complex legal problems for clients.”
Clients face constant pressure to strike the optimal balance between cost, quality, and risk, and Allen & Overy is responding to this by broadening its resourcing and the tools it uses. MarginMatrix™ is the latest product in the suite of delivery solutions created to solve client challenges, which include the Legal Service Centre, Peerpoint, aosphere, Project Management Office and technologies such as Collaborate and Ringtail Caseroom. For more information on delivery solutions please visit www.allenovery.com/delivery
For further information, please contact Rebecca Hooper, email@example.com, on +44 (0)20 3088 2152.
*This calculation is based on one person working 40 hours a week for 48 working weeks per year.