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