In the first of two articles on collateral management strategy published in Securities Finance Times Issue 321, Bob Currie examines advances in collateral optimisation and electronic negotiation of collateral schedules.
For Adenza’s Sophie Marnhier-Foy, product strategy director, UMR has not just been a compliance exercise. “It changes the collateral ecosystem and requires proactive optimisation,” she explains. “There are many factors contributing to a final increase in funding costs.” Some, she suggests, are exogeneous and cannot be controlled …. “However, other parameters can be both controlled and anticipated. This confirms the benefit of an holistic approach to risk inputs, margin exposure and collateral funding costs across a firm’s portfolio. An optimal optimisation process is not conducted ad hoc utilising isolated factor inputs,” she says. “Rather, it requires a logical series of simulations, pre- and post-trade, for live and legacy portfolios.”
For Jérôme Petit, EMEA market specialist manager at Adenza, transparency across the firm is key to managing collateral requirements efficiently. For example, the collateral schedules, the collateral inventory and the cost of funding all need to be clearly visible to the front office. This requires tools plugged into the trading application to deliver the necessary data — for instance pre-trade analytics and what-if margin analysis, along with tools to understand the impact on the firm’s credit risk.