Collateral management plans still needed

More than 50% of financial institutions have yet to establish a collateral management strategy, according to Clearstream.

By None

More than 50% of financial institutions have yet to establish a collateral management strategy, according to Clearstream.

The post-trade services provider polled delegates at its conference in Luxembourg last week and found that 61% of respondents still needed to establish a clear strategy and measures around collateral. Only 13% said their strategies were ready. 

Clearstream’s poll also found 95% of delegates agree that sourcing collateral has risen up the agenda in the past 12 months, and 85% of financial experts see an increasing role for triparty repos for corporates, as a replacement to cash deposits.

The summit was attended by 850 members, representing banks and infrastructure providers across the globe. 

Stefan Lepp, head of global securities financing and executive board member at Clearstream, said the poll results clearly demonstrated that overcoming the collateral challenge remained a global issue that required continued attention.

“The financial community knows that it needs to get smarter about its collateral management operations to help de-risk the markets and comply with regulatory requirements,” he said.

“Yet while we know that collateral is in theory available, much of it remains fragmented and difficult to unlock and mobilise, which comes at a high cost. At the same time, creating new systemic risk by pooling collateral in a single place must be avoided.”

Collateral has become a buzzword in the industry recently, as market participants brace for a collateral squeeze as a result of new OTC derivatives regulation in Europe and the US, which requires initial and variation margin to be posted when clearing derivatives trades, and new bank capital requirements under Basel III. 

Since new legislation was introduced, a number of organisations, including market infrastructures, have launched new services aimed at helping participants with collateral optimisation. Clearstream started the Global Liquidity Hub solution, which allows clients to mobilise held assets, while its competitor Euroclear launched Collateral Highway. 

«