With recent investments in collateral space technology, three main drivers in this area are driving the need for improved technology in collateral space. That’s according to a Securities Finance Technology Symposium 2021 panelist, speaking alongside four other market experts in a panel titled Collateral of Tomorrow.
First, large investments have been made over the past decade to comply with regulations such as Dodd-Frank and the European Market Infrastructure Regulation. And, while there are more regulations on the agenda that will impact technology in the collateral space, the panelist says, such as regulations on central securities depositories for settlements or rules on uncompensated margins for margin calls, we are at the end of this particular driver compared to the other two.
The second factor is about achieving sustainable efficiencies by simplifying the overall systems landscape. “We have seen different initiatives to simplify IT systems within banks up to the collateralization of OTC derivatives and then the move to securities financing transactions and exchange-traded derivatives,” says the panelist. So many examples of consolidation of collateral management between asset classes and between businesses, concluded the speaker.
Regarding the above, there are efficiencies that can be achieved, the panelist said. Reduce IT infrastructure costs by creating and maintaining connectivity and interfaces, using cloud technology and integrating open source systems.
You can also create operational efficiencies, the panelist says. “If you use a single system, of course you will have a single system to automate your margin call and you will have synergies between all the teams you have”, adds the panelist. The centralization of the inventory of guarantees, the reduction of the cost of reimbursement of guarantees and their optimal allocation will also make it possible to gain in efficiency.
The third and final driver is technical, the panelist said. “We’ve seen recently that global institutions are gradually adopting component thinking where they say, ‘I don’t need to overhaul the whole infrastructure.’ Having components that are non-intrusive, easy to integrate and quickly deliver value is a big part of recent investments, adds the panelist. An example of this technology driver is the adoption of automated email technology for margin call communication, the panelist concludes.