Financial technology provider SunGard has developed a service that it says can help banks, broker-dealers and asset managers to organise their collateral in the most efficient way possible, ahead of the global shift towards central clearing of OTC derivatives.
The migration to a centrally cleared model for OTC derivatives, mandated by G20 political leaders and implemented via legislation such as the Dodd-Frank Act in the US and the European market infrastructure regulation in Europe, is escalating the demand for high quality collateral such as cash or highly rated government bonds.
SunGard's Apex Collateral has been designed to centralise the collateral management process, from creating and maintaining a single, real-time inventory of collateral assets to trading collateral and managing operational requirements. Users can view and manage collateral across assets, business lines and geographies.
“Whereas traditional systems were based on the minimum requirement – providing collateral – ours takes things to the next level,” said Jane Milner, head of strategy for securities finance and enterprise collateral management, SunGard. “This is all about optimising the collateral – in other words, doing things much more efficiently.”
The SunGard offering uses algorithms to automatically calculate the optimal assignment of assets to collateral requirements. The aim is to minimise the overall cost and maximise the use of valuable collateral. Collateral can be managed across securities lending and repo transactions as well as bilateral and centrally cleared OTC derivatives.
“It’s a bit like loading different sized containers into a ship,” explained Milner. “You could have a group of people to decide the process manually. But this is a job made for computers – as long as they are sufficiently sophisticated, they will always match the collateral in the most efficient way.”
Milner added that this solution avoids the tendency of human organisers to over-allocate the best collateral to the trades considered most important, leaving only the lesser quality collateral behind to cover the remainder.
“SunGard’s Apex Collateral solution helps us increase our effectiveness by providing a consolidated, big picture view of our collateral asset pool across OTC derivatives, reinsurance collateral, repo and securities lending,” said Rich Hochreutiner, global head of collateral trading and management at Swiss Re. “This transparency helps us mitigate counterparty risk while getting maximum value from our collateral assets.”
Meanwhile, Lombard Risk Management, a provider of collateral management and regulatory reporting solutions, has signed three contracts this month with new clients for its COLLINE web-based solution. The company also added an extension to its existing COLLINE contract with Germany’s Dekabank to include central counterparty clearing abilities. The new clients include a US custodian bank, a Swedish financial institution, and Austria’s Bank fur Arbeit under Wirtschaft.