Articles and reports on collateral management tend to focus on the high-level application of technology and the money to be made (or not lost) from collateral optimization. Under the hood, the reality is that collateral management for complex organizations relies heavily on technology infrastructure. This is much more than a graphic user interface at the client site; this technology extends deep into the back-end of financial markets and has a global reach. I want to share some insights we’ve gained by working with hundreds of financial institutions in this area; specifically, about straight-through processing and the technology that makes collateral management systems scalable, flexible and easy to use throughout the organization.
We’ve seen not one but three announcements or promotions of real-time collateral and liquidity analytics and valuations services this week, and its still just Wednesday. These services are an important step forward for a market that needs to know the value of its holdings, collateral and liquidity in real time. However, there is a big problem that remains unresolved.
The collateral management infrastructure market is evolving at a rapid pace, with new ideas emerging on a regular basis for how banks, insurance companies and fund managers can solve some of the most complex challenges in today’s financial markets through effective technology use. A “best case” scenario for using collateral infrastructure that shares “mutualized” technology and applications across the industry is now coming into view. This article explains that best case, and why industry utilities and shared services are the path forward for market practitioners.
A new survey from SunGard and the Professional Risk Managers’ International Association, and conducted by NewOak, shows risk managers getting smarter about what they want from a collateral management technology platform. If risk managers have anything to say about it, the focus ought to be aggregating all collateral into one spot.
This article previews an upcoming Finadium research survey on insurance companies, fund managers and the process of collateral management. In particular, we look at manager thinking on collateral efficiency and portfolio strategy, non-cash vs. cash and the value of trading collateral.
The emerging collateral environment places new requirements on banks, insurance companies and others to not only manage collateral internally, but also connect efficiently with external infrastructures. This is becoming a core question of business strategy as there are potentially meaningful cost consequences to these decisions. Finadium’s recent research report on tri-party repo and collateral agents looked at how those agents conduct their business; the reverse question is what best practices are necessary for market participants in collateralized transactions when interfacing with tri-party agents, CCPs and Central Securities Depositories.
An important question on the horizon is the use of cash in collateral management. Financial market participants have experienced a relatively relaxed cash environment over the last few years. Cash has been inexpensive; interest rates have remained low enough that placing cash as collateral to a bilateral counterparty or to meet obligations at a CCP has meant that few opportunities were missed elsewhere.
In producing our new research report on emerging market technologies in securities finance, we were reminded of a 1997 book by Harvard professor Clayton Christensen, “The Innovator’s Dilemma.” There are direct lessons from this book to today’s securities finance and collateral management services and technology environment.
A new Finadium research report profiles twelve vendors with new or evolved technologies in securities finance and collateral management, with lessons for what could make these firms successful over the next year or two.