DTCC-Euroclear Global Collateral’s (GlobalCollateral) 2018 Collateral Management Forum featured a rich line-up of presentations and panel discussions surrounding a broad range of issues related to collateral management.
Panelists and presenters looked ahead to Initial Margin rules which will spark an increase in margin calls and a corresponding liquidity crunch when they go live in 2019 and 2020, and discussed the actions that need to be taken in order to tackle implementation challenges. Regardless of the market segment the speakers represented, their conversations revolved around the importance of enhancing capital efficiencies and liquidity management because these areas drive investment performance for clients and investors. This reflected a noticeable shift from a focus on enhancing operational efficiencies.
Views from the Top
DTCC President and CEO Mike Bodson and Euroclear CEO Lieve Mostrey, provided C-suite perspectives on what lies ahead in the collateral management space. Olivier Grimonpont, CEO, GlobalCollateral, provided a business update on GlobalCollateral’s two derivatives and financing solutions: The Margin Transit Utility (MTU) and the Collateral Management Utility (CMU).
In his opening remarks, Bodson stated that, while regulatory policy continues to the single most critical factor that is impacting a broad range of issues in collateral management, there is a marked shift in the industry’s focus from operational efficiencies to capital efficiencies. This is due to number of factors—from the need to optimize collateral more efficiently to the importance of making the settlement process more scalable, reporting collateral positions and collateral valuations faster using standardized processes and the after-effects of demanding new regulations that require more efficient collateral management.
Presenting attendees with GlobalCollateral’s unique perspective, he expounded on three key ways for the industry to optimize collateral: maximizing the value of the vast stores of data available by formatting it in a standardized fashion and making it available in real-time, globalization of assets and the ability of firms to move collateral quickly and easily to the most efficient geographical location for risk reduction and enhanced financing, and the process of selecting, settling and recognizing collateral.
“With upcoming regulations driving multiple account structures and locations, the ability to facilitate movement and recognize settlement is going to be tantamount to managing risks,” Bodson said. “We see speed and efficiency, combined with greater automation that enables real-time reporting, as the keys to success here.”
Mostrey, who made the closing remarks, talked about the challenges that lie ahead and the adjustments the industry will need to make in the upcoming months in anticipation of the upcoming rules. She emphasized the need for market participants to start making preparations now, and to move forward as one group, stating that resilience of all is important to all.
“The world of collateral management is now coming together at this one interconnected pool of collateral,” she said. “Optimizing this resource is crucial as the balance sheet of our companies continues to be a big topic. Our communities are in the same boat when facing regulatory challenges.”
Grimonpont provided a business update on the roll-out of MTU, GlobalCollateral’s solution for enabling straight-through processing of margin calls, mitigating systemic risk, providing improved liquidity and operational risk management—and CMU, the company’s solution for automating collateral management tasks, re-positioning inventory seamlessly across settlement locations, and making collateral available wherever and whenever it is needed.
Initial Margin: Impacts and Tackling Upcoming Challenges
The event took deep dives into the impact of Initial Margin, and how to tackle the challenges it will present.
The first session of the day, moderated by Gareth Jones, Co-Chief Operating Officer, GlobalCollateral, brought together the buy-side and sell-side, representatives of which discussed the infrastructural, operational and legal consequences of collateral management regulatory and cost effective improvement needs, and how they stack up against capital and liquidity management priorities.
In a separate panel, moderated by Amy Caruso, Chief Commercial Officer, GlobalCollateral, industry leaders came together to discuss how to streamline Initial Margin. Looking forward to increased margin call volumes, condensed settlement cycles, segregation requirements for Initial Margin, and managing legal, counterparty and liquidity risks, panelists discussed the tri-party and third party account structures and utility-based solutions for margin call agreements, settlement and reporting.
Financing Structures and the Collateral Management Ecosystem
The convergence of securities finance and collateral management was also examined in detail at the conference. With the many changes that securities finance has gone through in the past 10 years, the market has become far more complex where traders need to consider multiple criteria in structuring the global funding book. At the same time, increased margin requirements in both the cleared and non-cleared spaces have added to the demand for securities collateral. The need to optimize collateral globally across financing and collateral postings has brought these formerly discreet functions together. The integration of these two vital functions was discussed in a session moderated by Oscar Huettner, Product Sales Specialist, GlobalCollateral.
During the last panel session of the day, industry representatives from legal, operational, and collateral management teams took a deep dive into the collateral management ecosystem and discussed both collateral management and financing structures from a global perspective.
As the event came to a close, Mostrey emphasized the need for collaboration in order to combat the challenges that had been presented during the day, stating “The solution for these challenges is best solved as a group. This is the exact reason DTCC and Euroclear joined forces in building GlobalCollateral.”