Collateral Optimisation: Challenges and Opportunities 2015


Following the start of the financial crisis in 2008, a new wave of global capital markets regulations such as the Basel III accords, the US Dodd-Frank Act and the EU’s European Market Infrastructure Regulation were envisaged in an effort to create safer and more transparent markets for all participants. The effects of these regulations on the realm of collateral management were significant, giving rise to a need for investment banks to adopt more effective collateral management and optimisation practices. This report examines the issues faced by sellside operations teams working to create new, optimal collateral management solutions for future use.

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The implementation of global capital market regulations, particularly new rules mandating the central clearing of OTC derivatives, is driving increasing demand for high-grade collateral. As a result, several banks shifted their collateral operations from the back-office to the front-office to ensure a high degree of control over daily collateral management processes. However, many banks realise that it takes more than just a focus on front-office activities and practices to ensure the efficient usage of collateral in a manner that remains beneficial to the bottom line.

The theoretical objective of collateral optimisation practices is straightforward: to find ways to view collateral holdings and obligations in a central location, allowing banks to utilise those holdings as efficiently as possible to fulfil obligations. Put into practice, these processes are complex. Many banks are identifying hurdles related to finding and integrating additional solutions into their existing technology stack. The banks are creating and implementing new operational processes and working to find the appropriate budget or human capital, all of which limits banks from optimising collateral management practices.

GreySpark Partners works with banks to develop enterprise-level changes for collateral operations. For example, this report describes how banks are struggling to support increased pressures on their collateral processes by adding additional headcount. As such, the report analyses the collateral operations of global banks and recommends ways to streamline and optimise collateral flows. The report also discusses the need for banks to take a tactical versus a strategic view of the bank’s overall collateral optimisation strategy.

Published on: 2 Mar, 2015

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Collateral Optimisation – Table of Contents

  • 1.0 Collateral Management Regulations
    • 1.1. The Changing Nature of Collateral Demand and Supply
  • 2.0 Sellside Collateral Management from an Operational Perspective
    • 2.1. Key Collateral Management Operations Processes
    • 2.2. Current Issues Impacting Collateral Operations
    • 2.3. Requirements and Add-ons for Effective Collateral Optimisation
  • 3.0 Collateral Optimisation Solutions and Strategies
    • 3.1. Buy vs. Build
    • 3.2. Outsourcing vs. Insourcing
    • 3.3. Enterprise-level Change vs. Siloed Solutions
    • 3.4. A Tactical View vs. a Strategic View
  • 4.0 Collateral Optimisation: Strategy Shapes the Future
  • 5.0 Appendices
    • 5.1. Glossary of Terms
    • 5.2. Table of Figures