Why Axiom’s new tech-led derivatives offering is worth paying attention to
The significance of Axiom’s new tech-enabled derivatives offering has gone somewhat under the radar, after its announcement last week (22 June) was interpreted by some as an Ashurst-led partnership.
It is worth paying attention to. Axiom has won work from seven global banks to help them prepare for forthcoming changes in derivatives regulation across the European Union, United States and Asia, leveraging its tech and a team of over 300 legal, negotiation and regulatory specialists trained in derivatives documentation.
A massive challenge for banks that would traditionally have been dealt with by law firms throwing copious bodies at the problem, preparations for the new margin variation rules will see Axiom use its proprietary cloud-based technology, IRIS, to extract key contractual terms from existing agreements and automatically generate new agreements that are compliant with rules now coming into place in 2017. The technology mitigates risk by ‘hard-wiring’ adherence to clients’ negotiating policies and creates a comprehensive audit trail.
In order to help it deliver this new service, Axiom will partner with established law firms that have a strong financial institutions client-base and which can give banks comfort that the new contracts are compliant. Ashurst is the first such partnership, with others expected to follow shortly.
Axiom has always competed with law firms for the corporate dollar but this is a very clear play for banking work that has traditionally fallen to the largest blue chip advisers with teams of bodies at their disposal.
It falls into the same space as Allen & Overy’s new online offering MarginMatrix, which generates compliant contracts that are then negotiated by Deloitte’s managed services team to achieve the same outcome for banks.
Chris DeConti (pictured on the home page), executive vice president and global head of Axiom’s banking practice told Legal IT Insider: “What’s significant about the new margin variation requirements relating to collateral in the derivatives space is that each jurisdiction has a different take and it will require the renegotiation of thousands of existing agreements.
“Across the market there is an embrace of the idea that in order to handle work around regulatory remediation that’s been presenting itself, the traditional model of throwing more lawyers at it will no longer suffice.”
Often agreements will involve, for example, a U.S. bank trading with a UK fund through their European branch, with potentially the regulations of all three jurisdictions coming into play. DeConti said: “We’ve developed a rules engine that allows us to put in those determinate variables and out comes appropriately compliant language. If you were doing it the old fashioned way and having a lawyer look at each one, it would take hours.”
Contracts will still need negotiation, which is where Axiom will leverage its team of 300 advisers. DeConti says: “If you don’t have a large scalable pool of resources familiar with market norms you could have trouble meeting the regulatory deadlines.”
In recent years, Axiom’s capital markets banking practice has conducted more than 50-plus projects supporting banks’ derivatives documentation functions, leveraging it ‘industrialized’ approach.
However, this latest initiative will also require world-class legal advice from long established players and DeConti adds: “We’re thrilled to be working with Ashurst. They’re the first of what we imagine will become a handful of carefully constructed partnerships to handle this kind of work.
“What Ashurst bring is the ability to deliver up front advice to help banks interpret the regulations. We then come and execute against that advice, operationalising it across thousands of agreements that need to be renegotiated and at the end, the law firm provides the bank with comfort and an opinion that their new documents are compliant.
“It’s an argument we’ve been putting forward for years and a cornerstone of our business that we need to change and modernise the way legal work gets done. We’re thrilled that our approach and expertise is being recognised by the market.”