Allen & Overy has built on its successful online derivatives and data management platform aosphere to launch MarginMatrix, a new digital derivatives compliance system delivered in conjunction with Deloitte’s managed services team.
The new platform codifies derivatives law in multiple jurisdictions such as New York and Hong Kong, with the system now capable of automating documents that are compliant with the law in each of those jurisdictions. The first draft of the document will build in acceptable legal parameters and, because negotiation of the document doesn’t need a lawyer, A&O has brought in Deloitte’s managed services team to manage the negotiation process.
The game changing move – the first major collaboration between an international law firm and one of the ‘Big Four’ accountants – was the brainchild of derivatives partner David Wakeling.
After conceiving of the idea, Wakeling was given the backing of A&O to take some time out of his legal practice to get the idea off the ground. It has involved input from lawyers across A&O’s international offices, working with the aosphere platform, which is headed by Marc-Henri Chamay and specialises in providing financial institutions with user-friendly access to complex legal information.
Wakeling told Legal IT Insider: “Our lawyers will update the system as it develops. We expect a lot of issues kicked up to Allen & Overy at first but there are only so many issues that can arise and the system will evolve.”
A&O estimates that 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 new system was prompted by regulatory requirements that will come into force for the USD500 trillion over-the-counter (OTC) derivatives market from 1 September 2016.
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.
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, added: “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.”
MarginMatrix is the latest A&O 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.