Collateral management 'next big challenge'
14 October 2010 London
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A SunGard-sponsored study on collateral management reveals that collateral optimisation and efficient collateral management are the next big challenges in capital markets, with more than 60 per cent of respondents stating that a cross-silo view is important for collateral management. Firms will need to improve their cross-product, firm-wide risk management of collateral of all types, and optimise returns from collateral trading in order to help them remain competitive.
The study, issued by Finadium, was conducted using an online survey in June and July of 2010 and was completed by 122 professionals directly involved with collateral management on a day-to-day basis. Respondents were primarily senior management and operations executives from banks and asset management firms in Europe, North America and Australia, working in the areas of OTC derivatives, securities lending or repos.
The need to meet Basel III recommendations and other new regulatory mandates is driving the use of enterprise-wide collateral management technology. Survey participants expect that collateral optimisation, including managing cross-product netting and the use of central credit counterparties, will be their next focus areas for advancement.
According to Josh Galper, managing principal of Finadium, "Collateral management will be foremost in the minds of banks and their counterparties through 2011 and 2012. An expanded use of both cash and non-cash collateral across bilateral and centrally cleared markets will require financial market participants to optimise their operations and technology in order to help them remain competitive. As regulators worldwide focus on expanding capital requirements, banks and their clients will face new challenges in maintaining liquidity for their trading operations. Making sure that the right collateral has gone to the right counterparty, including central credit counterparties, will help keep liquidity intact."
According to the research, the amount of collateral outstanding for financial transactions rose 15-fold over the last decade, driven by surges in derivative transactions. Products that require collateral management are often handled in silos within organisations by product and/or by geographical divisions among derivatives (OTC and listed), equities, fixed income, and foreign exchange and money markets. SunGard's collateral management study reveals that:
39 per cent of respondents see risk mitigation as the sole purpose of their collateral management efforts, while 54 per cent believe collateral management should be used for both risk mitigation and revenue generation.
For the 25 per cent of respondents moving toward firm-wide collateral management, securities lending and repos are by far the most popular targets for consolidation.
77 per cent of respondents plan to consolidate securities lending collateral management, and 68 per cent plan to include repos.
64 per cent of respondents said they were somewhat to very prepared for new Bank for International Settlements (BIS) changes.
Ted Allen, vice president, collateral, at SunGard's capital markets business, said: "Leveraging collateral management as a service differentiator will help firms improve their capital management, make better use of assets, manage complex collateral schedules, and become more competitive while effectively handling regulatory and government pressures. The sophisticated use of technology, providing a common framework for enterprise-wide collateral management, is critical to helping firms make the leap from collateral management to collateral optimisation."
The study, issued by Finadium, was conducted using an online survey in June and July of 2010 and was completed by 122 professionals directly involved with collateral management on a day-to-day basis. Respondents were primarily senior management and operations executives from banks and asset management firms in Europe, North America and Australia, working in the areas of OTC derivatives, securities lending or repos.
The need to meet Basel III recommendations and other new regulatory mandates is driving the use of enterprise-wide collateral management technology. Survey participants expect that collateral optimisation, including managing cross-product netting and the use of central credit counterparties, will be their next focus areas for advancement.
According to Josh Galper, managing principal of Finadium, "Collateral management will be foremost in the minds of banks and their counterparties through 2011 and 2012. An expanded use of both cash and non-cash collateral across bilateral and centrally cleared markets will require financial market participants to optimise their operations and technology in order to help them remain competitive. As regulators worldwide focus on expanding capital requirements, banks and their clients will face new challenges in maintaining liquidity for their trading operations. Making sure that the right collateral has gone to the right counterparty, including central credit counterparties, will help keep liquidity intact."
According to the research, the amount of collateral outstanding for financial transactions rose 15-fold over the last decade, driven by surges in derivative transactions. Products that require collateral management are often handled in silos within organisations by product and/or by geographical divisions among derivatives (OTC and listed), equities, fixed income, and foreign exchange and money markets. SunGard's collateral management study reveals that:
39 per cent of respondents see risk mitigation as the sole purpose of their collateral management efforts, while 54 per cent believe collateral management should be used for both risk mitigation and revenue generation.
For the 25 per cent of respondents moving toward firm-wide collateral management, securities lending and repos are by far the most popular targets for consolidation.
77 per cent of respondents plan to consolidate securities lending collateral management, and 68 per cent plan to include repos.
64 per cent of respondents said they were somewhat to very prepared for new Bank for International Settlements (BIS) changes.
Ted Allen, vice president, collateral, at SunGard's capital markets business, said: "Leveraging collateral management as a service differentiator will help firms improve their capital management, make better use of assets, manage complex collateral schedules, and become more competitive while effectively handling regulatory and government pressures. The sophisticated use of technology, providing a common framework for enterprise-wide collateral management, is critical to helping firms make the leap from collateral management to collateral optimisation."
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