What’s in store for collateral management in 2017?

Collateral management has been a hot topic ever since the start of the financial crisis in 2008 – but in reality this was only a hot topic for those of us in the industry. Issues such as collateral shortage fears, collateral optimisation, automation of collateral calls and payments were discussed at many a conference but very little actually changed.

In 2017 everything changes. 

Anyone trading derivatives will have been used to making the odd collateral margin call. From March 2017 almost everyone trading uncleared OTC derivatives will have to calculate variation margin, determine if a collateral movement is required and send or receive a collateral payment – this process will be required every day. This applies to all OTC derivatives and therefore captures those FX Non-deliverable Forwards that have not traditionally been collateralised. If you also consider that eligible OTC derivatives are now mandated for central clearing, it means that the number of margin calls you will have to calculate and make will increase by approximately 500%.

Collateral management will become more connected; adoption of electronic messaging between trading counterparties, custodians, Tri-party agents and CCPs will allow users to click a button and watch as their collateral calls are sent, accepted and paid.  In fact, why move collateral around at all? Demand for Tri-party custody services will increase as a more efficient way of paying or receiving margin collateral.

The rise of the CCPs will continue. Increased adoption of central clearing will occur and all major CCPs will look to bring their trade processing capability to the non-centrally cleared market (i.e. they process trades by calculating margin in much the same way they do now but the trade still legally faces the original counterparty).

Finally, we predict a rapid increased adoption of cloud technology in financial services. We saw a tipping point mid-way through 2016 in our conversations with new clients. We no longer had to persuade them of the benefits of our platform being cloud-based. There is now a presumption that using the cloud is safer, more secure and significantly more cost efficient than using your own locally hosted servers. We use Amazon Web Services (AWS) and once our clients know this we move on to talking about the reasons why our platform will revolutionise their collateral lives.

This promises to be a very exciting 2017!

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