SFT: Three key technologies driving adoption of collateral efficiency tools
06 May 2021 UK
Image: stock.adobe.com/Vladislav Ociacia
Thanks to recent investments in technology in the collateral space, three main drivers in this arena are pushing the need for enhanced technology in the collateral space. That’s according to a panellist at the Securities Finance Technology Symposium 2021, speaking alongside four other market experts on a panel titled Collateral of Tomorrow.
Firstly, there has been heavy investment in the past decade in order to comply with regulations such as Dodd-Frank and the European Market Infrastructure Regulation. And, although there is more regulation on the agenda that will impact the technology in the collateral space, the panellist says, such as Central Securities Depositories Regulation for settlements or the Uncleared Margin Rules for margin calls, we are at the tail end of this particular driver compared to the other two.
The second driver relates to achieving sustainable efficiencies through simplifying the overall systems landscape. “We have seen different initiatives to simplify IT systems within banks through to the collateralisation of over-the-counter derivatives, then the move to securities financing trades and exchange-traded derivatives,” the panellist says. All examples of consolidating collateral management across asset classes and across business lines, the speaker concluded.
Regarding the above, there are efficiencies that can be achieved, the panellist says. Reducing IT infrastructure costs by building and maintaining connectivity and interfaces, using cloud technology and onboarding open source systems.
You can also create efficiencies operationally too, the panellist says. “If you use a unique system you will of course have one system to automate your margin call and you will have synergies between all the teams you have,” the panellist adds. Centralising collateral inventory and reducing the refunding cost of collateral and allocating optimally, will also drive efficiency.
The third and final driver is a technical one, the panellist says. “We have seen recently that global institutions are progressively adopting a component-based thinking where they say, “I don't need to have to review the whole infrastructure”. Having components that are non-intrusive, easy to integrate and that bring value quickly constitute much of recent investments, the panellist adds. An example of this technological driver is the adoption of automated email technology for the communication of margin calls, the panellist concludes.
Firstly, there has been heavy investment in the past decade in order to comply with regulations such as Dodd-Frank and the European Market Infrastructure Regulation. And, although there is more regulation on the agenda that will impact the technology in the collateral space, the panellist says, such as Central Securities Depositories Regulation for settlements or the Uncleared Margin Rules for margin calls, we are at the tail end of this particular driver compared to the other two.
The second driver relates to achieving sustainable efficiencies through simplifying the overall systems landscape. “We have seen different initiatives to simplify IT systems within banks through to the collateralisation of over-the-counter derivatives, then the move to securities financing trades and exchange-traded derivatives,” the panellist says. All examples of consolidating collateral management across asset classes and across business lines, the speaker concluded.
Regarding the above, there are efficiencies that can be achieved, the panellist says. Reducing IT infrastructure costs by building and maintaining connectivity and interfaces, using cloud technology and onboarding open source systems.
You can also create efficiencies operationally too, the panellist says. “If you use a unique system you will of course have one system to automate your margin call and you will have synergies between all the teams you have,” the panellist adds. Centralising collateral inventory and reducing the refunding cost of collateral and allocating optimally, will also drive efficiency.
The third and final driver is a technical one, the panellist says. “We have seen recently that global institutions are progressively adopting a component-based thinking where they say, “I don't need to have to review the whole infrastructure”. Having components that are non-intrusive, easy to integrate and that bring value quickly constitute much of recent investments, the panellist adds. An example of this technological driver is the adoption of automated email technology for the communication of margin calls, the panellist concludes.
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