Margin calls explosion on the horizon, claims CloudMargin
06 November 2017 London
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Recent regulatory changes will result in a 500 percent increase in the number of margin calls that have to be calculated by collateral management teams, according to a recent report by CloudMargin.
The report also argued that the public cloud model will become the dominant infrastructure model by 2020.
CloudMargin estimates the adoption of cloud models is expected to more than quadruple from 10 percent in 2016 to 45 percent in 2020.
Cloud technology could also slash the overall cost of system ownership by up to 75 percent, compared with other solutions, the report said.
“A much higher level of automation and efficiency will be essential if compliance is to be carried out effectively, and this is especially true when it comes to collateral management,” the report stated.
According to Accenture, a technology service provider, global investment in fintech companies has grown from around $1 billion in 2010 to more than $15 billion in 2015, and CloudMargin explained that this “is only set to grow.”
Accenture found that almost 90 percent of executives in the financial service industry believe compliance costs will show double-digit growth in the next two years.
CloudMargin indicated that this change in attitude towards collateral management comes from the 2007-08 financial crisis and that the financial industry is now more aware that collateral management offers security against the possibility of payment default than it was prior to 2007.
The report added: “Collateral was only required for smaller, riskier counterparties, such as hedge funds, as it was considered impossible that a large institution would default. Such assumptions were subsequently proven to be woefully inaccurate with the collapse of Lehman Brothers sending shockwaves around the world.”
CloudMargin stated: “Upgrades are automatic, and there is no versioning of the system. Consequently, it is easy to benefit seamlessly from the latest tools and functionality as they are rolled out. This removes professional services upgrade fees to install updates. Essentially, the cost of development is shared.”
The report also argued that the public cloud model will become the dominant infrastructure model by 2020.
CloudMargin estimates the adoption of cloud models is expected to more than quadruple from 10 percent in 2016 to 45 percent in 2020.
Cloud technology could also slash the overall cost of system ownership by up to 75 percent, compared with other solutions, the report said.
“A much higher level of automation and efficiency will be essential if compliance is to be carried out effectively, and this is especially true when it comes to collateral management,” the report stated.
According to Accenture, a technology service provider, global investment in fintech companies has grown from around $1 billion in 2010 to more than $15 billion in 2015, and CloudMargin explained that this “is only set to grow.”
Accenture found that almost 90 percent of executives in the financial service industry believe compliance costs will show double-digit growth in the next two years.
CloudMargin indicated that this change in attitude towards collateral management comes from the 2007-08 financial crisis and that the financial industry is now more aware that collateral management offers security against the possibility of payment default than it was prior to 2007.
The report added: “Collateral was only required for smaller, riskier counterparties, such as hedge funds, as it was considered impossible that a large institution would default. Such assumptions were subsequently proven to be woefully inaccurate with the collapse of Lehman Brothers sending shockwaves around the world.”
CloudMargin stated: “Upgrades are automatic, and there is no versioning of the system. Consequently, it is easy to benefit seamlessly from the latest tools and functionality as they are rolled out. This removes professional services upgrade fees to install updates. Essentially, the cost of development is shared.”
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