A new report has shown large disparities between buy- and sell-side firms in terms of the development of their collateral management processes.
The report shows that buy-side firms are at the early stages of their collateral evolution, focusing more on automating the process, as opposed to sell-side firms which are fine-tuning and focusing on optimisation.
In the findings – published by Euroclear and produced by Aite Group – there was also trend from some buy-side firms to move towards disintermediation by becoming direct members of clearing houses rather than use brokers.
The buy-side was found to be moving forward with its collateral management capabilities though, with the majority of asset managers and pension funds pinpointing the issue as a high priority.
“In terms of the evolution of their [buy-side] behaviour and their involvement in the collateral industry, it is a starting point,” Cedric Gillerot, director, product management division, Euroclear, told theTRADEnews.com.
“There is a willingness and obligation from the buy-side to be involved in the repo markets, financing markets and collateral markets more than ever.”
Gillerot added that one of the main takeaways from the report was the “asymmetry between the sell-side and buy-side”.
As new collateral and margin rules begin to come into force and pose new challenges to the buy-side, many firms are now begging to look at their processes and consider changes.
The move towards automation has been a key transition for the buy-side, as they look to evolve their traditionally manual processes.
“When you look at collateral management, the sell-side are looking at things like optimisation,” said Virginie O’Shea, senior analyst at Aite Group, and one of the authors of the report.
“When you look at what the buy-side are trying to do, it is around moving away from manual processes, such as spreadsheets, key-person risk, because it is hard to get good collateral people.
“People are aware they need to have some automation. That is why you are seeing a lot of investment and prioritisation on the part of buy-side, especially the large ones who realise they need to be better at dealing with these things.”
One of the key themes of this year’s Euroclear Collateral Conference in Brussels has been collateral optimisation, however at present, the report suggests this is more of a priority for sell-side firms.