The UMR-driven FX clearing environment. The introduction of Uncleared Margin Rules (UMR) significantly impacted the foreign exhange (FX) clearing world. It substantially increased trading costs for uncleared derivatives and thus, accelerated the expansion of clearing programs globally.
It mandated that counterparties post a new two-way initial margin (IM) in segregated accounts. Although cash-settled products fall outside UMR, unsettled FX forwards are included in the Average Annual Notional Amount (AANA) calculation that determines whether a firm is in scope for UMR and therefore must post IM when it exceeds the relevant UMR threshold. The bilateral margin requirement created additional collateral and capital costs that incited firms to consider more cost-effective clearing channels.