Joined at the trade
14 July 2017
Broadridge’s Martin Seagroatt and Gilbert Scherff map out an architecture for a more integrated, automated and industrialised collateral ecosystem
Image: Shutterstock
Effective global inventory management has become critical to firms transacting in collateralised business.
Global inventory management involves the centralisation of the firm’s (collateral) assets across all business lines, pools and geographical locations into a single real-time global view through the use of technology solutions such as Broadridge’s.
This consolidated view of assets on a firm-wide basis allows significant efficiencies in sourcing collateral and managing liquidity. It enables the firm to identify previously fragmented pools on a forward-looking basis.
From there, a central inventory solution allows the firm to match collateral to exposures across business lines.
This technology then enables the firm to mobilise the right kind of collateral to where it needs to be, when it needs to be there.
The use of global inventory solutions has arisen in parallel to the evolution of a new more integrated, automated and industrialised collateral ecosystem.
The industry is moving from an environment of individual competing firms to extended value chains of networked organisations.
This combination of inventory management technology at the firm level, closely integrated with a more interoperable ecosystem enables a significant increase in efficiency and straight through processing.
The increasing standardisation and centralisation of data also opens up new possibilities for deployment of pre-and post-trade analytics.
Driving the new collateral paradigm is greater attention to the way scarce collateral assets are deployed, in order to:
• Satisfy regulatory ratios such as the Basel III liquidity coverage ratio, net stable funding ratio, leverage ratio and Solvency II
• Source larger amounts of central counterparty (CCP)-eligible collateral for cleared derivatives trading
• Pledge initial and variation margin against uncleared derivatives for uncleared margin reform to meet demanding settlement cut-offs
• Expand business opportunities and the firm’s range of counterparties through effective risk mitigation
• Manage the impact of collateral on the firm’s capital and balance sheet
The diagram overleaf maps out one view of how the new more integrated ecosystem could look. In conjunction with the evolution of technology and processes at the firm level, a series of industry-wide initiatives are currently in flight. These initiatives aim to create a more joined up infrastructure for moving collateral across geographic locations and pools. Fundamental to this more efficient plumbing is greater integration and interoperability between central securities depositories, custodians and triparty agents and market utilities.
This sees a more integrated collateral ecosystem with an integrated market infrastructure and more connectivity between different systems, data providers and trading platforms.
This in turn allows an increase in automation and straight-through processing. There is also the potential for a collateral mobilisation infrastructure based on blockchain technology. This offers significant scope as a means to move collateral around more quickly and efficiently.
The network and efficiency effects of these more integrated channels will ultimately result in a collateral ecosystem that is more resilient to economic shocks, leading to a reduction in systemic risk.
At the firm level, we can break the processes covered in the diagram into a series of steps:
• What collateral you have
• Where it is located
• Where you need it to be
• Ways to mobilise it
• Measuring and optimising it
• Reporting it
Broadridge’s whitepaper, Global Inventory Management: The Central Nervous System of Financial Institutions in the New Collateral Ecosystem, discusses each of these steps in turn and details how the global inventory solution supports these stages more effectively than legacy siloed processes and systems. The whitepaper also discusses future trends that could take shape, such as blockchain infrastructure for mobilising collateral and the emergence of central exchanges for collateral trading.
It covers the deployment of machine learning and artificial intelligence as key technologies that could be facilitated by the growing standardisation, centralisation, and visualisation of the increasing mass of information available in the new big data era of collateral.
Global inventory management involves the centralisation of the firm’s (collateral) assets across all business lines, pools and geographical locations into a single real-time global view through the use of technology solutions such as Broadridge’s.
This consolidated view of assets on a firm-wide basis allows significant efficiencies in sourcing collateral and managing liquidity. It enables the firm to identify previously fragmented pools on a forward-looking basis.
From there, a central inventory solution allows the firm to match collateral to exposures across business lines.
This technology then enables the firm to mobilise the right kind of collateral to where it needs to be, when it needs to be there.
The use of global inventory solutions has arisen in parallel to the evolution of a new more integrated, automated and industrialised collateral ecosystem.
The industry is moving from an environment of individual competing firms to extended value chains of networked organisations.
This combination of inventory management technology at the firm level, closely integrated with a more interoperable ecosystem enables a significant increase in efficiency and straight through processing.
The increasing standardisation and centralisation of data also opens up new possibilities for deployment of pre-and post-trade analytics.
Driving the new collateral paradigm is greater attention to the way scarce collateral assets are deployed, in order to:
• Satisfy regulatory ratios such as the Basel III liquidity coverage ratio, net stable funding ratio, leverage ratio and Solvency II
• Source larger amounts of central counterparty (CCP)-eligible collateral for cleared derivatives trading
• Pledge initial and variation margin against uncleared derivatives for uncleared margin reform to meet demanding settlement cut-offs
• Expand business opportunities and the firm’s range of counterparties through effective risk mitigation
• Manage the impact of collateral on the firm’s capital and balance sheet
The diagram overleaf maps out one view of how the new more integrated ecosystem could look. In conjunction with the evolution of technology and processes at the firm level, a series of industry-wide initiatives are currently in flight. These initiatives aim to create a more joined up infrastructure for moving collateral across geographic locations and pools. Fundamental to this more efficient plumbing is greater integration and interoperability between central securities depositories, custodians and triparty agents and market utilities.
This sees a more integrated collateral ecosystem with an integrated market infrastructure and more connectivity between different systems, data providers and trading platforms.
This in turn allows an increase in automation and straight-through processing. There is also the potential for a collateral mobilisation infrastructure based on blockchain technology. This offers significant scope as a means to move collateral around more quickly and efficiently.
The network and efficiency effects of these more integrated channels will ultimately result in a collateral ecosystem that is more resilient to economic shocks, leading to a reduction in systemic risk.
At the firm level, we can break the processes covered in the diagram into a series of steps:
• What collateral you have
• Where it is located
• Where you need it to be
• Ways to mobilise it
• Measuring and optimising it
• Reporting it
Broadridge’s whitepaper, Global Inventory Management: The Central Nervous System of Financial Institutions in the New Collateral Ecosystem, discusses each of these steps in turn and details how the global inventory solution supports these stages more effectively than legacy siloed processes and systems. The whitepaper also discusses future trends that could take shape, such as blockchain infrastructure for mobilising collateral and the emergence of central exchanges for collateral trading.
It covers the deployment of machine learning and artificial intelligence as key technologies that could be facilitated by the growing standardisation, centralisation, and visualisation of the increasing mass of information available in the new big data era of collateral.
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