PostTrade 360°: New possibilities in collateral management
10 September 2024 Sweden
Image: Daniel_Tison
Collateral management is not a solution to all problems, but it is a great mitigation strategy for risk management, according to Olivier Grimonpont, head of product management, market liquidity, at Euroclear.
He was one of the speakers at the ‘New possibilities in collateral management’ panel discussion at Post Trade 360° Nordic 2024 in Stockholm.
The discussion started by examining the value of different elements of collateral management.
Ingrid Garin, head of markets at BNY, said: “If you don’t link your collateral management to all your funding tools, and you work in isolation of the rest of the ecosystem, the outcome might be the Liability-Driven Investment (LDI) crisis.”
Gael Delaunay, head of collateral management at Clearstream, highlighted the importance of data analytics.
He said: “Organisations have relatively complex problems to solve. This stems from the fact that inventories span across locations to meet global assets and liabilities.
“Traditionally, data sets are very fragmented due to legacy systems and firms’ siloed structures. Reliable and real-time data are required to make informed decisions. Players like ourselves can offer solutions to consolidate and provide data analytics to support the decision process.”
Garin added that alongside effective data analytics, there is also a value in the flexibility of having access to different solutions.
She said: “Exploring optionality, to actually face the unknonw, is important, and having this in as part of your analysis is a clear requirement to really hedge your risk.
The audience had the opportunity to participate by voting through their phones, which then shaped further discussion.
Collateral optimisation was the most important topic for the audience, followed by prediction ability.
Grimonpont commented: “Clearly, there is a major focus, these days, in optimisation, and it's probably linked to that there is more and more demand for collateral, and there are finite numbers of collateral you can use.”
He continued: “We all know that there are pieces of collateral that today are blocking the market, and you can use them, so operational efficiency is when you can mobilise those assets that are unused.”
In that regard, Garin added: “Collateral optimization always puts a smile on my face, because it doesn't mean the same thing for all the clients, as each client comes with the foundation of their house.”
“So yes, we are trying to standardise, we are operating efficiencies, and we know that tri party is close to our heart, but not every client has the same legacy and has the same view of the collateral optimisation. It's more about doing an audit of what you got, what you want, where you want to go, and then building a collateral optimisation.”
Moving forward from optimisation, the panel also addressed the topic of innovation and adopting new technologies.
According to Delaunay, having computing capability is “the driver for the future” which should not be omitted.
He said: “AI will not solve everything as it comes with its own limitations, but it can be handy if combined with traditional optimisation models. The possibilities are almost infinite but need to support real-world use cases.”
Regarding that, two panellists agreed that AI can simplify complex problems and find solutions by linking different use cases to each other.
Grimonpont said: ”The technology today enables us to link all those pieces of work together. Beauty comes from the fact that all those use cases link to each other and that really makes a very powerful tool.”
However, Garin argued that the market needs to find the right cases for new technologies, and take into account funding and regulatory aspects.
“The market needs to, first of all, find the right user cases to use the technology to pay for the solution. You also have a big regulatory framework around it. You work in a ecosystem. You need the regulatory aspect behind it, and really have the use cases.
“You don't work in a vacuum, in the collateral, I would say you work more transversely in a micro level with different user cases, which could touch many pivots. But I see the regulatory environment as a big influencer, and it needs to stand on its own to feed this topic. You need to be able to make money on the back of it, to finance the barrier to entry.”
In terms of distributed ledger technology (DLT), the audience agreed that it would take 5 to 10 years to fully adopt it by the industry.
For Grimonpont, DLT has the most efficient use cases outside of collateral management.
He said: “Even though collateral management is often used as the best case for DLT, I'm not 100 per cent sure that's the reality. I think there are a lot of different areas where DLT might actually be far more efficient than collateral management, and documentation is definitely an area where the DLT can be of great value.”
Closing up with final thoughts, Garin said that it is all about evolution, not revolution.
"If you go for revolution, it’s really hard," she said. "You scrap what you are doing today, and you are really starting on a blank page. You might overanalyse it so much that you will end up having a monster to implement.
Delaunay added: “We focus on the dialogue. We start with understanding your foundational needs and priorities. This allows us to advise on best practices, but it also helps us design our roadmap for future developments to meet your needs and support your growth.”
He was one of the speakers at the ‘New possibilities in collateral management’ panel discussion at Post Trade 360° Nordic 2024 in Stockholm.
The discussion started by examining the value of different elements of collateral management.
Ingrid Garin, head of markets at BNY, said: “If you don’t link your collateral management to all your funding tools, and you work in isolation of the rest of the ecosystem, the outcome might be the Liability-Driven Investment (LDI) crisis.”
Gael Delaunay, head of collateral management at Clearstream, highlighted the importance of data analytics.
He said: “Organisations have relatively complex problems to solve. This stems from the fact that inventories span across locations to meet global assets and liabilities.
“Traditionally, data sets are very fragmented due to legacy systems and firms’ siloed structures. Reliable and real-time data are required to make informed decisions. Players like ourselves can offer solutions to consolidate and provide data analytics to support the decision process.”
Garin added that alongside effective data analytics, there is also a value in the flexibility of having access to different solutions.
She said: “Exploring optionality, to actually face the unknonw, is important, and having this in as part of your analysis is a clear requirement to really hedge your risk.
The audience had the opportunity to participate by voting through their phones, which then shaped further discussion.
Collateral optimisation was the most important topic for the audience, followed by prediction ability.
Grimonpont commented: “Clearly, there is a major focus, these days, in optimisation, and it's probably linked to that there is more and more demand for collateral, and there are finite numbers of collateral you can use.”
He continued: “We all know that there are pieces of collateral that today are blocking the market, and you can use them, so operational efficiency is when you can mobilise those assets that are unused.”
In that regard, Garin added: “Collateral optimization always puts a smile on my face, because it doesn't mean the same thing for all the clients, as each client comes with the foundation of their house.”
“So yes, we are trying to standardise, we are operating efficiencies, and we know that tri party is close to our heart, but not every client has the same legacy and has the same view of the collateral optimisation. It's more about doing an audit of what you got, what you want, where you want to go, and then building a collateral optimisation.”
Moving forward from optimisation, the panel also addressed the topic of innovation and adopting new technologies.
According to Delaunay, having computing capability is “the driver for the future” which should not be omitted.
He said: “AI will not solve everything as it comes with its own limitations, but it can be handy if combined with traditional optimisation models. The possibilities are almost infinite but need to support real-world use cases.”
Regarding that, two panellists agreed that AI can simplify complex problems and find solutions by linking different use cases to each other.
Grimonpont said: ”The technology today enables us to link all those pieces of work together. Beauty comes from the fact that all those use cases link to each other and that really makes a very powerful tool.”
However, Garin argued that the market needs to find the right cases for new technologies, and take into account funding and regulatory aspects.
“The market needs to, first of all, find the right user cases to use the technology to pay for the solution. You also have a big regulatory framework around it. You work in a ecosystem. You need the regulatory aspect behind it, and really have the use cases.
“You don't work in a vacuum, in the collateral, I would say you work more transversely in a micro level with different user cases, which could touch many pivots. But I see the regulatory environment as a big influencer, and it needs to stand on its own to feed this topic. You need to be able to make money on the back of it, to finance the barrier to entry.”
In terms of distributed ledger technology (DLT), the audience agreed that it would take 5 to 10 years to fully adopt it by the industry.
For Grimonpont, DLT has the most efficient use cases outside of collateral management.
He said: “Even though collateral management is often used as the best case for DLT, I'm not 100 per cent sure that's the reality. I think there are a lot of different areas where DLT might actually be far more efficient than collateral management, and documentation is definitely an area where the DLT can be of great value.”
Closing up with final thoughts, Garin said that it is all about evolution, not revolution.
"If you go for revolution, it’s really hard," she said. "You scrap what you are doing today, and you are really starting on a blank page. You might overanalyse it so much that you will end up having a monster to implement.
Delaunay added: “We focus on the dialogue. We start with understanding your foundational needs and priorities. This allows us to advise on best practices, but it also helps us design our roadmap for future developments to meet your needs and support your growth.”
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