Collateral management is changing rapidly to meet the demands of the new post-crisis environment. It can be difficult for firms to know where to start when defining a target operating model that clearly identifies the changes required to systems and processes.
We recently completed a survey of collateral management technology providers and will soon publish a similar survey of collateral management service providers. Something that struck us was the points of competition and differentiation between the two groups. Here’s what we are seeing.
Finadium has released a new Executive Briefing report on balance sheet optimization strategies for hedge funds. Hedge funds and other alternative asset managers have been hearing about balance sheet optimization, also called self-funding or becoming an efficient counterparty, with some frequency. What does this mean exactly however, and what should hedge funds and other alternative asset managers do to execute a practical plan? This report details multiple strategies to assist alternative asset managers with making the transition towards self-funding their own portfolios.
Finadium will hold a webinar for research clients on Tuesday, December 8 at 10AM New York / 15h London / 16h European time. This webinar will present the fast evolution and future possibilities of blockchain for the collateralized trading markets including OTC derivatives, repo and securities lending. We will also present findings from our recent research report on collateral management technology vendors.
Finadium has conducted an industry-wide survey of vendors promoting software solutions in collateral management for securities and investments. This survey provides readers with a product summary, product coverage, market differentiators, new functionalities added in the last year and technology and implementation considerations. On an industry-wide basis, we analyze the important new features that vendors are adding, what problems their clients are trying to solve and who vendors see as their competition.
Our recent research projects on asset managers and the uses of collateral management (published) and survey of collateral management technology vendors (forthcoming) have shown us that the next advance in collateral management technology is around the corner. It won’t be blockchain although that’s interesting too. Here’s what we are seeing.
Following publication of our September 2015 research report, “Can the Blockchain Work for Securities Finance, OTC Derivatives and Other Collateralized Transactions?“, we have continued to track vendor activities in this space. This article offers an update on four blockchain vendor moves and press releases that have occurred in the last two weeks with a focus on the securities and investments space.
Finadium has released a new research report, “Asset Managers and the Uses of Collateral in OTC Derivatives, Securities Lending and Repo: A Finadium Survey.” This report looks at the progress made by fund managers and insurance companies in preparing for a future landscape where collateral may be in short supply, and cross-asset collateral management is a requirement.
We’ve had several discussions over the last two weeks about collateral optimization and its role in the market. One result of these conversations is that maybe collateral optimization is largely achievable and is now a poor end-goal for financial institutions, and that something bigger is now on the horizon. In this post we present our view of how a new focus on collateral could change markets for the better.
It seems that the era of mergers between physical and synthetic finance businesses is finally upon us. While client preferences may lean towards one type of trade vs. another, there is no question that regulation is the major driver of change. When faced with a request for a securities loan vs. a total return swap, the swap may be both easier and less capital intensive. In the long-term this will create broad-based new dynamics in financial markets. But in the short-term, our clients are working to manage complex implementation and technology changes.
Finadium has released a new research report on blockchain, a potentially exciting new technology in financial markets. Blockchain promises to be revolutionary, disruptive and a way to fundamentally change financial services. While proponents may be correct about the technologyʼs potential, the buzz can be confusing; how much of the publicity is hype versus reality for collateralized trading markets including securities finance and OTC derivatives? We offer a practical look at how blockchain could be implemented across complex capital market activities including liquidity and capital management.
The dizzying array of new regulation in financial markets is forcing change on all market participants. Securities technology vendors that think through not only today’s challenges but also tomorrow’s are best positioned as key partners for their bank and brokerage clients.
Collateral Management is changing rapidly; working out how to respond can be challenging. 4sight would like to invite you to a complimentary webinar on how to benchmark your current collateral systems and processes against best practice.
This is no slight on utilities – they are a very good idea to share industry resources with a pay as you go model. Rather, this article looks at the nature of utilities as the silos of securities finance and OTC derivatives get overshadowed by corporate entities with shared services (the Enterprise Cloud model). We start with our article in Securities Finance Monitor Magazine from June 2015 and add some new perspectives.
Moody’s announced last week that it will be working to create ratings for CCPs. Thomas Murray has a CCP rating program as well. We’ve seen some of these methodologies and have to ask, what’s the risk that really needs evaluating? It would be great for centralized services to outsource this work for individual market participants, but with the information available, what purpose does this serve?
There is an old saying in Capital Markets: “revenue comes from trading but profits come from operations.” Securities lending is a business process that exemplifies this truism. Firms are making major changes in reaction to regulatory and market realities and have to maintain profitability at the same time. As part of this evolution, securities lending operations and technology are becoming part of the integrated enterprise-wide service offering of major financial services firms. Along the way, firms are struggling to balance the needs of operational efficiency, compliance and cost management.
As banks, brokers and beneficial owners begin to get serious about signing on to Eurex Clearing’s Lending CCP, we evaluate what’s required to go live. We spoke with early participants and evaluated Eurex Clearing and Pirum documents on the boarding and integration phase, IT, legal and risk requirements.
The securities finance industry is currently digesting the heavy meal that has been Basel III, CRD-IV, Dodd-Frank and related regional regulatory initiatives impacting the global market. These are not light appetizers at all. Rather, financial intermediaries are facing tough questions about how they will move forward in their business models. This article looks at the three main options facing market participants in their business decision making, some negative and some positive, and offers SunGard findings on market trends.
We’ve been watching trueEX for a while, and a recent hire of a former securities lending professional sealed the deal: this start up could potentially teach securities finance a lesson or two, or even three. Here’s what we’re seeing:
For years, we’ve been hearing that equity collateral in broker-to-broker securities lending is a coming new standard…. Any day now…. We’re moving in that direction…. The advantages are so obvious it has to happen…. We can’t afford for it not to happen….
Last week the post-trades processing vendor SmartStream purchased Algorithmics’ collateral assets from IBM. While IBM’s sale was perhaps not unexpected, the buyer was a surprise. Our first question was, what is SmartStream’s plan here? We had a chance to speak with SmartStream’s CEO and Head of Product Strategy to find out.
Between Sapient’s recent survey and the Clearstream Global Securities Finance Summit in Luxembourg, we’ve been hearing a lot lately about the idea of collateral management and clearing utilities. It seems that market actors are gearing themselves up to create self-managed utilities not unlike EquiLend, member-owned clearinghouses or other services that financial institutions own for their mutual benefit. But is this really happening and is it the right time?
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.
We have heard it a number of times now: collateral management technology vendors and financial institution buyers asking whether it is best to have a front to back solution that captures trading, collateral, risk, pre- and post-trade analytics, and operations, or whether it is better to invest in or build best-of-breed solutions. We have come down to an opinion on this topic that we are ready to present.
Finadium recently completed an analysis of emerging technologies and services in securities finance and collateral management. The results will be published in an upcoming research report (note: this is a separate report from our recently released analysis of large collateral management technology vendors). In the meanwhile, below are some common themes we see in the emerging vendor space.
Finadium’s latest research report is a review of vendors and major considerations for large financial institutions looking to purchase collateral management technology solutions. We review seven vendors and provide recommendations for evaluating sticker prices and ultimately selecting a vendor.
Below is the introductory presentation made at yesterday’s Finadium 2014 Conference, “Innovating for the Basel III and Dodd-Frank World.”
An article in Institutional Investor dated February 10, 2014 “Outsourcing Collateral Management Can Be a Mixed Blessing,” by David Turner was interesting. It got us thinking….
An article in www.hereisthecity.com made us laugh. It was called “The 15 banking jobs that will be the most secure over the next 7 years”.
Two new surveys have come out, one from SIX Securities Services on banks and the cost of capital, the other from SunGard and PRMIA on short-term thinking in risk management.
Finadium has released a new report, Large OTC Derivatives End-Users on Clearing and Collateral: A Finadium Survey. This report looks at the opinions of large OTC derivatives end-users as clearing mandates come into force and new priorities emerge. Distribution rights to the report have been purchased by Calypso Technology, making the report free through Calypso representatives (see below for the web link).
Finadium has released a new survey, Hedge Funds on Prime Brokerage Services and Technology. This report presents the first part of Finadium’s 2013 surveying of hedge fund managers and includes hedge fund prioritization of the services that prime brokers provide. Distribution rights to the report have been purchased by SunGard, making the report publicly available with registration.
Finadium released a report this morning, “A Strategic Guide to Collateral Management Technology Vendors,” covering the landscape and products of collateral management technology vendors. Like many Finadium reports, the focus is on breaking down the potentially confusing array of products to identify commonalities and differences in the marketplace. The report includes write-ups on eight leading vendors.
An October 2, 2012 article on the CAPCO web site caught our eye. Entitled “Trade repository reporting: The regulation of unintended consequences” by Tom Riesack, the post looked at the complexities just under the surface of trade repositories. While the article was directed at swaps data reporting, it applies to lots of other OTC trading – including repo — where reporting is on the horizon.
A press release from OMGEO today said that the firm had upgraded its ProtoColl product to include a holistic view of their collateral management needs. This is what the industry needs, and OMGEO now joins the small group of technology providers including SunGard and 4Sight that say they can get cross-product collateral management right.
Bank of New York Mellon (BNYM) has told their tri-party customers about the next step in reducing the systemic risk….and some market players fear it will create some nasty unintended consequences. Maturing tri-party trades with collateral that clear in the Depository Trust & Clearing Corp. (DTC) will have to be pre-funded. This will impair the ability to fund corporates, equities, money markets, ABS, Private Label CMOs, and muni bonds. It may limit the number of banks/broker/dealers who can offer financing.
Last month four market actors, LCH.Clearnet Limited (LCH.Clearnet), New York Portfolio Clearing LLC (NYPC), The Depository Trust & Clearing Corporation (DTCC) and NYSE Euronext (NYX), announced that they had signed a Memorandum of Understanding to explore how to include clearing interest rates swaps from LCH.Clearnet’s Swapclear platform on the NYPC system. NYPC already provides consolidated margining for both OTC derivative and physical interest rate related products (including treasuries and GC repo). This seems like a step forward in creating a single CCP where all bond and interest rate-centric trades could be cleared (or at least a major competitor to any other individual CCP like ICE). A single CCP is something like the Holy Grail for collateral managers in the OTC derivatives markets, but can it happen? This article explorers some of the opportunities, challenges and important next steps.
The displeasure from the Fed on the pace of the tri-party reforms is now well known. Its not all bad news though. The systemic risk embedded in the unwind/rewind hasn’t gone away, although the window is narrower. Clearing agents can look at 3-way confirmed trades to see if there are problems brewing. Lots of other good things came out of the Task Force’s work. But the Fed wants tri-party settlement to be an “operational moment”, in other words an instantaneous process. When given the task of spec’ing out how long that would take to get there, some IT timelines extended into 2016. NY Fed head Dudley was not pleased.
When we spoke with AcadiaSoft almost three years ago, we weren’t entirely sure that there was a success story waiting in the wings there. Other collateral management technology firms that we spoke with at the same time thought that the firm had gone out of business. In fact, AcadiaSoft was and is a going concern and reported some important client wins this week including Cheyne Capital and Goldman Sachs Asset Management.