How have regulations changed the way firms view and manage their collateral management commitments?
The regulation has certainly changed the way firms view and manage their collateral management obligations and many saw it as an opportunity to streamline their collateral processes.
However, as is often the case when regulatory deadlines are looming, it forces some firms to make hasty decisions in a bid to become quickly compliant. For many firms no (or limited) extra resources were provided to help market participants meet their uncleared margin obligations.
As a result, many firms overlooked the opportunity that the regulation presented to review their existing processes and consider the use of new technologies to optimise their margin workflows. Those firms that did opt to overhaul their traditional margin processes are reaping many operational benefits and are experiencing new levels of automation.
What opportunities has this created?
Those firms stuck using manual, fragmented processes should take the time to re-evaluate their approach and ensure their collateral management workflows are both cost and operationally efficient.
This will most likely require a change in processes and adopting the right technology to eliminate cumbersome repetitive tasks, which are better suited to automation.
Along with a change in processes, firms need to adopt a change in attitude and be willing to move away from the comfort blanket of manual touch and verification of each workflow step.
Automation can help firms move away from manual processing and focus their efforts on higher value activities that help reduce risk.
How basic are some firm’s in-house collateral systems?
The margin call lifecycle has not really evolved much over the years with many firms still manually calculating and exchanging margin calls.
Collateral management by default comprises many different parts, which traditionally relied on multiple tools ranging from excel spreadsheets to email to installed software.
The calculation and issuance of margin calls alone is dependent on the collation of data from multiple sources and communication via email, and in some cases even fax. This approach typically requires users to send each margin call individually. Calls may be slow to calculate, slow to send and require many manual touch points; vastly increasing the risk of user error. For those firms that have not yet embraced automation and are stuck using manual and fragmented processes, it’s highly probable that they may experience incomplete margin calls and failed payments, plus the increased operational costs required to rectify errors and unsecured exposures.
Where do your systems sit within the collateral landscape?
Our web-based collateral management service, triResolve Margin, was built as a new generation margin platform, where automation is at the heart of the solution. triResolve Margin can fully automate the collateral process, without requiring a complex retro-fit to suit a firm’s existing processes.
Margin amounts are calculated using triResolve portfolio reconciliation data and users simply select from a suite of predetermined auto-rules and automate the areas that best suit them in seconds.
There is the option to implement a completely automated end-to-end workflow, or to configure each collateral agreement differently. This allows the client to select the exact level of automation with which they are comfortable. Regardless of the approach, triResolve Margin consistently highlights the exceptions and provides the analytics and dispute resolution tools required to quickly resolve discrepancies.
What can firms do to meet operational efficiency?
For firms to achieve real transformative change they need to adopt a solution that considers the entire margin workflow; including margin call calculation and validation, messaging with counterparties, call issuance/reply, booking of collateral, pledge acceptance and settlement instruction.
triResolve Margin, an extension of triResolve Portfolio Reconciliation, is best placed to provide the market with the operational efficiency it so desperately needs. triResolve Portfolio Reconciliation has over 2,100 groups working together to regularly reconcile 85 percent of all collateralised over-the-counter derivatives and corresponding collateral balances. If a market participant needs to verify the trade information underlying a margin call and resolve disputes, they use triResolve.
By leveraging triResolve Portfolio Reconciliation, triResolve Margin is unique in its ability to automate the collateral management process. Firms simply select their auto-rules, and triResolve Margin provides the required level of straight-through processing, highlighting any exceptions. This unique and unrivalled integration of processes enables the service to truly automate collateral management, allowing the industry to focus on regulatory compliance and risk—rather than the process.
Will technology force firms to choose between manual or automated processes? How do firms know what technology is best suited to them?
Technology should not force firms to choose between manual or automated processes. Instead, clients should be given the flexibility to choose a workflow, which helps them confidently fulfil their regulatory and operational objectives. Some firms see value in continuing to perform manual tasks, but the right technology should enable them to eliminate cumbersome repetitive tasks, which are better suited to automation.
In the instance of collateral management, automation can help firms to move away from manual processing and focus their efforts on higher value activities that help reduce risk.
