Collateral Management - Securities Lending Times

PanelDiscussionNeri: Technology is helping collateral managers toautomate manually intensive operational processes,and improving the flow of data on exposuresand collateralisation throughout the organisation.This is allowing more time to focus on strategic decisionmaking about asset allocation and liquidity.Technology is also driving cutting-edge optimisationtechniques that are rapidly becoming a necessityfor balance sheet management in the newregulatory environment. Optimisation is helpingfirms make better use of valuable collateral andenabling a smoother transition to the regulatorycapital requirements that are laid out in Basel III.Once the migration of standardised bilateralderivatives contracts to CCPs is fully underway,technology will also help collateral managers tomake best execution decisions based on eachCCPs margining criteria and netting capabilities.Finally, collateral management systems willallow users to forecast exposure scenarios andresulting margin requirements through the lifecycleof a given trade more accurately. They canthen price this into the cost of collateral calculationand predicted profit and loss at the start ofthe trade, and make more informed decisionson which trades will be most profitable.Lillystone: Firms can now handle hundreds if notthousands of active agreements across multiplebusiness lines at once, automatically generatingand publishing margin call information, performingdaily reconciliations of portfolios, accessing globalinventories, which are often distributed disparately,and helping to negotiate and settle collateralwithin ever tighter deadlines. This would not havebeen possible without the application of technologyand technological innovation.In these times of heightened awareness of visibleand hidden risks, collateral managers need tokeep all their interested parties, both internal andexternal, integral to and informed of current andpotential situations on an almost continuous basis.It is in this area where collateral management isharnessing new technologies, such as throughthe use web-based tools, new data-miningtechniques, and advanced data visualisationsolutions. These extend the reach of collateralmanagement within firms to offer counterpartyfacinginterfaces that draw the margining partiescloser than ever, to deliver user-definablereporting, and also to offer self-service collateralmanagement portals.them to rely on portals to handle interactionswith customers and custodians, such as enablingcustomers to choose eligible collateralfrom that available in the portfolio to satisfy anegotiated margin call, and for custodians to bemade immediately aware of the agreement betweenthe collateralising parties.Communication between parties and custodiansis now migrating from the flimsy, insecuretelephone/email paradigm for negotiating margincalls, reconciliations and collateral transfers,to one founded on resilient, fault-tolerant, guaranteed-deliveryelectronic messaging. Whilethis has long been discussed, it is finally butslowly coming to market.Leveroni: Technology is the foundation for almosteverything that we have discussed. Managinga daily collateral management process,thriving in a mixed cleared / non-cleared environment,and facilitating collateral optimisation all requirean automated, efficient technical solution. Ifa firm wants to truly manage their counterpartyrisk, spreadsheets and manual processes arejust not good enough anymore. The requiredcollateral calls are too frequent, collateral eligibilityhas become too complex, and the overallcollateral will be in short supply. Simply put, technologyallows us to eliminate the potential for arepeat of past mistakes, while well preparing usto capitalise on future opportunities.MacAllan: To an extent, technological capabilityhas always shaped collateral management. Manyof the standard practices that we see in the markettoday have been defined by early technology solutionsand the extents or limits of their capacities.More so than ever, firms are looking to technologyto provide the tools with which to meetthe current challenges of the collateral market,across products. Frequently, in all but the largestfirms, internal change and technology teamsdo not have the capacity to support change ata sufficient rate to meet all emerging requirementsin this space, and so are looking to thirdpartyvendors to provide solutions.Technology vendors see the current environmentas a double-edged sword—it is a rapidlychanging environment that presents a challenge,as today’s solution may not be fit forpurpose for tomorrow’s as-yet-unknown requirements.However, it also presents a goldenopportunity to innovate and design configurableand flexible tools that can be adapted to theshifting demands of the market.At Lombard Risk, our COLLINE strategy is toprovide a truly cross-product margin platform,with optional and configurable functionality to allowcross-product netting, for both bilateral andcleared markets, and collateral optimisation. SLTSelf-service portals enable collateral managers,whether service-providers or not, to deliverfundamental as well as advanced features andfunctions to others, both inside and outside ofthe organisation. Collateral management nowhas practical tools and solutions that enable29www.securitieslendingtimes.com