Have you met Anna? Well actually, although experts in the market pronounce it Anna, it’s spelt “AANA”.

Annually, or perhaps “AANAually” since 2016, with the notable exception of 2020, the breadth of derivatives counterparties in-scope for posting initial margin under the global margin rules, has expanded.

Back in 2016, a “Phase 1” derivatives counterparty needed a book of EUR 3 trillion of uncleared derivatives to have to post initial margin. By 2017, six “Phase 2” dealer banks, each having at least EUR 2.25 trillion book were caught. They were followed by other banks and one hedge fund, with at least a EUR 1.5 trillion book in 2018 for “Phase 3“. Billions followed trillions in 2019 and the club of counterparty groups with at least EUR 750 billion of uncleared derivatives formed “Phase 4“. Each covered counterparty group in a new phase, has to put in place initial margin documentation and accompanying infrastructure, with all the other counterparty groups in both its phase, and prior ones, where it has a trading relationship: a massive task.

A one year hiatus in 2020, came about with a the delay to “Phase 5“, and the addition of a new “Phase 6“. The “Phase Fiver“, who must comply with the rules from 1 September 2021, now needs a book of uncleared derivatives of at least EUR 50 billion, and the new “Phase Sixers“, one of EUR 8 billion.

So back to Anna/AANA. Under the EU rules, for EU domiciled entities, the AANA or “aggregate average notional amount” refers to the total gross amount of uncleared derivatives a counterparty, at group level, has recorded on the “last business day of March, April and May”. Similar rules apply in post-Brexit UK, and a future post will discuss this.

Well the first AANA measurement point, the last business day of March, is 31 March 2021. The next two measurement points follow in May and June.

This is the “Observation Period” which determines the “aggregate average notional amount” of uncleared derivatives, , and going into it, there are plenty of derivatives counterparties who could either be Phase Fivers or Phase Sixers, depending on how these numbers pan out.

In recent times, market estimates have predicted that over 300 counterparties could fall into Phase 5 and almost 800 into Phase 6. Our market conversations tell us that many counterparty groups are on the edge.

Well for those on that edge, and indeed all Phase Fivers and Phase Sixers, looking for a refresher, here is the first episode of “Initial Margin in 2019 and 2020:”.

It’s from the days before we knew that things would extend to 2022. The episode covers what it is all the new phases are about, and the episode is the third most watched video amongst the hundreds on Mayer Brown’s you tube channel. Here is a link to the full episode: https://youtu.be/FlTy-B2Zgxs