Repos becoming the bedrock of market capital liquidity
16 May 2019 London
Image: Shutterstock
Repos are the most widely and commonly used securities finance transactions and are fast becoming the bedrock of market capital liquidity, according to one speaker during a presentation at this year’s Vermeg Annual Collateral Management Conference.
The speaker explained: “But for those who remember the ‘good old days’, repos in conjunction with collateral management agreement where somewhat viewed as a back-office function, an afterthought it many ways.”
“However, the lowly securities based lending (SBL) transaction is now viewed as an integral component of the banking industry.”
It was highlighted that SBL transactions are “fundamental to the provision of the untapped global inventory of high-grade collateral for smaller institutions and buy-side clients”.
“They are also simultaneously providing sell-side institutions with further profitable clients and revenue streams.”
Meanwhile, delegates took part in a poll which asked them if they think there is still an industry-wide issue in relation to collateral certainty.
In response, some 48 percent said yes, some 33 percent said no, and some 21 percent said that they weren’t sure.
Discussing challenges, the speaker noted that proving efficiency in SBL collateral management, as always, provides a challenging task.
“One of the biggest obstacles for this is IT complexity in a form of product silos, multiple systems, data touch points and a lack of technical integration”, the speaker explained.
“Significant initiatives in this space include a move towards single platform cross-margin product systems and electronic messaging.”
They concluded that SBL margining would benefit greatly from real-time integration to upstream systems and data sources.
“There is now a real need for automation in reconciliation. Firms need to be gifted with technological flexibility to support a wide variety of methodology globally so that manual intervention is able to re-run calculations on a real-time basis.”
The speaker explained: “But for those who remember the ‘good old days’, repos in conjunction with collateral management agreement where somewhat viewed as a back-office function, an afterthought it many ways.”
“However, the lowly securities based lending (SBL) transaction is now viewed as an integral component of the banking industry.”
It was highlighted that SBL transactions are “fundamental to the provision of the untapped global inventory of high-grade collateral for smaller institutions and buy-side clients”.
“They are also simultaneously providing sell-side institutions with further profitable clients and revenue streams.”
Meanwhile, delegates took part in a poll which asked them if they think there is still an industry-wide issue in relation to collateral certainty.
In response, some 48 percent said yes, some 33 percent said no, and some 21 percent said that they weren’t sure.
Discussing challenges, the speaker noted that proving efficiency in SBL collateral management, as always, provides a challenging task.
“One of the biggest obstacles for this is IT complexity in a form of product silos, multiple systems, data touch points and a lack of technical integration”, the speaker explained.
“Significant initiatives in this space include a move towards single platform cross-margin product systems and electronic messaging.”
They concluded that SBL margining would benefit greatly from real-time integration to upstream systems and data sources.
“There is now a real need for automation in reconciliation. Firms need to be gifted with technological flexibility to support a wide variety of methodology globally so that manual intervention is able to re-run calculations on a real-time basis.”
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