ECC: Buy-side side of coin is becoming increasingly complex
19 November 2019 Brussels
Image: Shutterstock
The need for ‘collateral optimisation’ has reached the buy side for the first time and some are struggling to adapt, according to speakers at the Euroclear collateral conference in Brussels.
“The buy side of the coin is becoming increasingly complex,'' an agent lender speaker stated. “If you are a traditional asset manager you might not be expecting it [collateral optimisation] to interfere with your lending process, but you are now going to have to start thinking about the dynamic shift.”
Another speaker added that changes in the market environment mean that the buy side is having to focus on collateral optimisation for the first time, “which is presenting some challenges”.
“Collateral optimisation will mean different things to different firms but core to any collateral optimisation strategy is the requirement to gather an inventory of all of your collateral assets and manage trading and allocation decisions, and the balance sheet,” the speaker explained.
In order to address this, delegates were told that an integrated view needs to be made to harmonise data in a single place.
A beneficial owner speaker added: “Collateral optimisation has been a fundamental need for borrowers and beneficial owners as they seek ways to optimise their portfolios.”
Panellists at last week’s event said that the primary driver of this trend was the new regulatory frameworks being imposed on the securities finance and collateral management markets, including the Central Securities Depositories Regulation and the Uncleared Margin Rules.
However, it was noted that change can also bring new opportunities. In terms of potential benefits to this new market order, the speaker added: “To generate more revenue in Europe we have to focus on different collateral; we have to look at a wide selection of collateral. This will help us increase volumes and optimise our trading. We hope that the market can evolve a little bit in this space.”
Discussing the limitations, the panellist said: “In Europe, when you look at the collateral schedule you will have a lot of limits, which makes the trading itself quite difficult.”
“The European market could benefit from fewer constraints and a more standardised triparty collateral schedule because it is making the trade difficult sometimes to close and we don’t want the collateral leg to be the weakling of the transaction, rather it should help the transaction.”
“The buy side of the coin is becoming increasingly complex,'' an agent lender speaker stated. “If you are a traditional asset manager you might not be expecting it [collateral optimisation] to interfere with your lending process, but you are now going to have to start thinking about the dynamic shift.”
Another speaker added that changes in the market environment mean that the buy side is having to focus on collateral optimisation for the first time, “which is presenting some challenges”.
“Collateral optimisation will mean different things to different firms but core to any collateral optimisation strategy is the requirement to gather an inventory of all of your collateral assets and manage trading and allocation decisions, and the balance sheet,” the speaker explained.
In order to address this, delegates were told that an integrated view needs to be made to harmonise data in a single place.
A beneficial owner speaker added: “Collateral optimisation has been a fundamental need for borrowers and beneficial owners as they seek ways to optimise their portfolios.”
Panellists at last week’s event said that the primary driver of this trend was the new regulatory frameworks being imposed on the securities finance and collateral management markets, including the Central Securities Depositories Regulation and the Uncleared Margin Rules.
However, it was noted that change can also bring new opportunities. In terms of potential benefits to this new market order, the speaker added: “To generate more revenue in Europe we have to focus on different collateral; we have to look at a wide selection of collateral. This will help us increase volumes and optimise our trading. We hope that the market can evolve a little bit in this space.”
Discussing the limitations, the panellist said: “In Europe, when you look at the collateral schedule you will have a lot of limits, which makes the trading itself quite difficult.”
“The European market could benefit from fewer constraints and a more standardised triparty collateral schedule because it is making the trade difficult sometimes to close and we don’t want the collateral leg to be the weakling of the transaction, rather it should help the transaction.”
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