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The Depository Trust & Clearing Corporation (DTCC) today cautioned that financial firms could face significant cost, risk and operational challenges managing margin requirements in the years ahead and called for collaborative solutions that leverage market infrastructures to help the industry meet increasing demands.  

In its latest white paper, “Trends, Risks and Opportunities in Collateral Management,” DTCC outlines the key drivers behind emerging trends and risks, potential solutions and opportunities in collateral management. New financial rules and requirements are adding to collateral requirements with projections on rising margin calls running as high as 1000% and demand for collateral outstripping supply, which will:

  • Increase pressure on firms’ operating margins including increased funding costs and capital requirements.
  • Increase operational risk both for market participants and the financial system.
  • Overwhelm the current operational processes and system infrastructures.
  • Require technology changes to create comprehensive record keeping and reporting across the broad collateral environment of providers and services.

“Regulatory changes implemented over the past two years, and those still to come, have the potential to overwhelm firms and market participants with operational and risk challenges of a magnitude we have never seen before,” said Mark Jennis, DTCC Managing Director, Strategy and Business Development and co-author of the white paper. “This paper reinforces that collaborative infrastructure solutions are critical to solving the most challenging margin issues today because they will leverage the expertise and knowledge of multiple providers as well as address the problems in a more holistic manner. The reality is that collateral challenges will be far more extensive than what has been reported thus far, and in many cases, fragmented solutions will only address certain parts of the problem and may lead to unintended consequences.”

DTCC worked with its industry partners to produce the white paper, which offers insight and solutions to the following issues and broad strategic initiatives that are emerging as the demand for high-quality collateral rises:

  • Exposure calculation and margin management
  • Portfolio margining
  • Collateral optimization
  • Record keeping and reporting
  • Communication standards
  • Reference data

“As we have studied this issue in recent months, it has become clear that collateral challenges facing the industry are far more extensive than what has been suggested,” said Mathew Keshav Lewis, Vice President, European Strategy & Business Development. “DTCC is positioned to provide a leadership role in this space, and we are committed to continuing our collaboration with industry partners to develop solutions that address the operational costs and risks associated with the increased demand for collateral.”

Read the complete white paper here: