for margining MSFTAs Forward- Settling Agency MBS Trades

Lombard Risk COLLINE®
for margining MSFTAs Forward-
Settling Agency MBS Trades
The TMPG (Treasury Market Practices Group) first published a set
of best practice recommendations for the Treasury market in May
2007. Following the TMPG’s expansion in its scope beyond the
Treasury market, in November 2012, they issued a “Best Practices
for Treasury, Agency Debt, and Agency MBS (Mortgage-Backed
Securities) Markets” document that included recommendations
to require bi-lateral variation margin on MSFTAs (Master
Securities Forward Transaction Agreements) forward-settling
mortgage transactions.
These best practices aim to promote market integrity and
efficiency by recommending general guidelines for promoting
market liquidity, maintaining a robust control environment,
managing positions responsibly, and promoting efficient market
clearing – all in an effort to reduce counterparty and systemic risk.
In this ‘rolling process’, the TMPG recommended a risk-based
approached in which market participants prioritize their most
material counterparty exposures and make ‘significant progress’
towards margining forward-settling agency MBS exposures by
early June 2013 and ‘substantially complete’ the process to
exchange two-way variation margin on forward-settling MBS
exposures by December 31, 2013.
Why did the TMPG suggest these recommendations?
The recommendation from the TMPG for an exchange of two-way
variation margin was implemented to mitigate the risks
associated with un-margined agency MBS transactions.
In summary, when both parties (buy- and sell-side) are subject to
counterparty credit risk, exchanging variation margin two-ways
helps to protect both parties involved should fluctuations in the
market value of the deliverable securities transaction occur.
Additionally, this extensive two-way margining process aims
increase the resiliency of the agency MBS market more broadly.
In turn, helping to prevent rapid and potentially destabilizing price
What is the potential impact to my firm?
Firms are increasingly looking to consolidate their margin views
and exposure management processes on to a single platform
The volume of collateralized trades is increasing to
minimize risk post financial crisis
Regulations are making managing collateralized trades
more difficult with ‘home-grown’, spreadsheet solutions
With approximately $270 billion in value traded daily, where the
majority of transactions are forward-settling TBA (To-BeAnnounced) transactions, the MBS market size alone indicates
that most every firm will be impacted under the TMPG’s Best
Practices recommendations.
Firms that do not currently have a powerful and flexible crossproduct collateral management system in place will be affected
the most and are at reputational risk. Mitigating this existing
counterparty credit risk is a key area that firms must address in
order to maintain their market integrity.
COLLINE for forward-settling MSFTAs trade management
Lombard Risk’s COLLINE collateral management and clearing
solution enables firms to meet the market demands by
effectively and efficiently managing forward-settling Agency
Designed by business practitioners to meet the needs
of market participants tasked with tracking settlement
of forward-settling trades
Cost-effective way to comply with the TMPG
recommendation to margin forward-settling trades
Tried, tested and proven solution as the ability to
margin bi-lateral variation of forward-settling trades
has been available in COLLINE prior to the TMPG best
practices recommendations
COLLINE is versatile across all product lines for
comprehensive margining power [i.e. TBA
transactions, Specified Pool Transactions, ARM
(Adjustable-Rate Mortgage) Transactions, CMO
(Collateralized Mortgage Obligation) Transactions,
Agency MBSs]
COLLINE’s integrated reporting capabilities provides
market participants the ability to meet TMPG
reporting requirements
COLLINE’s flexibility affords varying levels of
granularity for margining forward-settling Agency
MBS trades and Agency MBS
COLLINE maintains agreement terms such as
Additional Margin Amounts, MTAs, Thresholds and
haircuts, and calculates collateral requirements based
on these attributes
COLLINE provides the ability to instruct same day
collateral settlements as well as calculate and instruct
For more information visit and/or email [email protected]
Managing collateralized trading | enabling regulatory compliance