Uncleared Margin Rules (UMR) have been shaking things up in the derivatives world, adding layers of compliance that investment firms can’t afford to ignore. Understanding and tackling them head-on can save you from major operational headaches. Given the approaching compliance date of September 1, 2025 for US funds, now is the time to determine if you are in scope and begin preparing documentation.  

What is UMR and Where Did It Originate?

UMR are global regulations designed to reduce risk in over-the-counter (OTC) derivatives trading. They require firms to exchange margin for non-centrally cleared derivatives to minimize counterparty risk. The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) introduced the framework, which has been implemented in phases worldwide. Compliance with UMR is a significant shift in how derivatives markets manage risk, making it essential for firms to understand and prepare for its impact.

How Do You Know If You’re in Scope?

Not all firms are impacted by UMR, so determining if you’re in scope is key. Funds with an Average Aggregate Notional Amount (AANA) of uncleared OTC derivatives portfolios totaling $8bln or more will be in scope. Determining whether you have met this threshold is done by assessing your AANA over a defined measuring period, typically a three-month window set by regulators. For those under the CFTC regime, the measuring period for the September 1, 2025 compliance date is March, April and May of this year. The compliance date for the UK/EU is January 1, 2026 with the same measuring period as the CTFC.

Each jurisdiction has its own threshold for compliance, meaning firms must closely monitor their trading activity to determine if they will be subject to UMR requirements. Falling within scope can have substantial operational and financial implications, so proactive assessment is critical.

What’s the Impact if You Are in Scope?

Being in scope means you and your counterparty must both post Regulatory Initial Margin (Reg IM) on a segregated basis, which can impact liquidity, collateral management, and operational processes. Firms must ensure they have the necessary infrastructure to track and post margin under the ISDA Standard Initial Margin Model (ISDA SIMM), which increased legal documentation (including additional custody relationships and IM credit support documentation).

Steps If You ARE in Scope

1. Identify In-Scope Counterparties – Determine which of your counterparty relationships will be in scope for the additional UMR requirements. The requirement to segregate Reg IM will apply to each counterparty where the Reg IM amount exceeds $50mm.

2. Select and Inform Your Counterparties – Communication is key to ensuring a smooth transition and avoiding last-minute issues.

3. Determine Custody Agreement – Because UMR mandates that Reg IM be held in segregated accounts, you must establish a custody arrangement with an approved third-party custodian. There are two primary structures: triparty, where the custodian facilitates collateral management between both parties, or third-party, where the custodian holds the collateral but does not actively manage collateral movements.

4. Negotiate UMR Documents – This includes finalizing agreements with your chosen custodian and counterparties, including credit support documentation, eligible collateral schedules and account control agreements, which can be a lengthy process requiring careful review.

How Expert Support Can Help

UMR compliance requires strategic planning, careful negotiation, and precise documentation—missteps can lead to costly delays, operational bottlenecks, and regulatory scrutiny. Quadrangle streamlines this process by negotiating and managing the critical agreements needed for UMR compliance, from custody arrangements to credit support documentation. With QDS, firms can seamlessly track, store, and extract key terms across all UMR-related agreements, ensuring ongoing compliance and satisfaction with regulatory requirements.

Quadrangle’s expertise and technology support your firm by:

• Term-by-term tracking – Our QDS platform ensures every key term in your UMR agreements is easily accessible, auditable, and aligned with compliance requirements.

• CreateIQ and supporting documentation assistance – Our experts guide firms through ISDA’s CreateIQ platform and handle credit support documentation, eligible collateral schedules, and account control agreements.

• Specialized legal subject matter expertise – We help structure counterparty relationships and custody arrangements to ensure compliance while optimizing operational efficiency.

Our team’s deep expertise in derivatives documentation means you don’t have to navigate UMR alone—Quadrangle provides the structure, insights, and technology to keep your firm ahead of the curve.