DTCC outlines margin concerns
24 January 2014 New York
Image: Shutterstock
The Depository Trust & Clearing Corporation has said that financial firms could face significant cost, risk and operational challenges managing margin requirements in the years ahead.
DTCC has automated, centralised and standardised the post-trade processing of financial transactions for thousands of financial institutions globally for more than 40 years.
The company has called for collaborative solutions that leverage market infrastructures to help the industry meet increasing demands.
In a whitepaper entitled, Trends, Risks and Opportunities in Collateral Management, DTCC outlined the key factors behind emerging trends and risks, and potential solutions and opportunities in collateral management.
New financial rules and requirements are adding to collateral requirements with projections on rising margin calls running as high as 1000 percent and demand for collateral outstripping supply, which DTCC believes will increase pressure on firms’ operating margins, increase operational risk and overwhelm the current operational processes and system infrastructures.
Mark Jennis, a managing director for strategy and business development at DTCC, and co-author of the whitepaper, said: “Regulatory changes implemented over the past two years, and those still to come, have the potential to overwhelm firms and market participants with operational and risk challenges of a magnitude we have never seen before.”
“This paper reinforces that collaborative infrastructure solutions are critical to solving the most challenging margin issues today because they will leverage the expertise and knowledge of multiple providers as well as address the problems in a more holistic manner. The reality is that collateral challenges will be far more extensive than what has been reported thus far, and in many cases, fragmented solutions will only address certain parts of the problem and may lead to unintended consequences.”
DTCC has automated, centralised and standardised the post-trade processing of financial transactions for thousands of financial institutions globally for more than 40 years.
The company has called for collaborative solutions that leverage market infrastructures to help the industry meet increasing demands.
In a whitepaper entitled, Trends, Risks and Opportunities in Collateral Management, DTCC outlined the key factors behind emerging trends and risks, and potential solutions and opportunities in collateral management.
New financial rules and requirements are adding to collateral requirements with projections on rising margin calls running as high as 1000 percent and demand for collateral outstripping supply, which DTCC believes will increase pressure on firms’ operating margins, increase operational risk and overwhelm the current operational processes and system infrastructures.
Mark Jennis, a managing director for strategy and business development at DTCC, and co-author of the whitepaper, said: “Regulatory changes implemented over the past two years, and those still to come, have the potential to overwhelm firms and market participants with operational and risk challenges of a magnitude we have never seen before.”
“This paper reinforces that collaborative infrastructure solutions are critical to solving the most challenging margin issues today because they will leverage the expertise and knowledge of multiple providers as well as address the problems in a more holistic manner. The reality is that collateral challenges will be far more extensive than what has been reported thus far, and in many cases, fragmented solutions will only address certain parts of the problem and may lead to unintended consequences.”
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