The CloudMargin team attended the Fleming Collateral Management Forum last week in Amsterdam. It is great to get back to in-person events and meet so many of you face-to-face again.
There were a number of interesting conversations and panels. A few key takeaways from the main topics discussed:
1. UMR is over. We now have time to breathe. Or do we?
As we will always need to monitor IM and prove to regulatory bodies that we are in or out of scope, UMR as we’ve focused on it for the past five+ years is a topic of the past. It is no longer about “how to comply” and steps firms need to take.
The industry has done an incredible job making the changes necessary to comply; many of those were short term to get firms over the hump. Now firms can take a step back and look at improvements to achieve efficiency.
2. Rising rates are creating an industry requirement to optimise broadly.
Post-UMR, ops teams finally have the time and luxury of establishing a thoughtful approach to addressing the current macroeconomic trends impacting cost and business decisions. Inflation driving up the cost of doing business, plus higher interest rates driving up the cost of capital means firms should use this time to be very strategic on how to create optimal collateral programs firm-wide.
For rates and the cost of capital, there is an emphasis on optimisation. Optimisation has been a buzzword in our industry for well over 10 years. Now, it is critical and fundamental to surviving in this environment.
On the post-trade side, there are waterfall and algorithmic approaches to optimisation. If you have a basic set of eligible collateral and can set up a cheapest-to-deliver process by yourself, waterfall is sufficient to meet this optimisation need. However, if you are sourcing from multiple types of collateral and have a more complex approach to post-trade ops, algorithmic optimisation would be the best approach.
On the pre-trade side, there is tech available to help PMs and traders analyse the total cost of a trade before they make it, helping firms make better decisions and impacting cost in the long term.
Ten years ago, these approaches would have been accessible to only the largest, resourceful firms. The good news is that the tech has caught up to the times and is available to all sizes of firms.
3. Consolidation and automation are a key foundation.
In order to reach true optimisation, a firm needs to start with a good foundation. That foundation is built by centralisation and automation. Centralisation is key not only in each line of business but across asset classes and teams. Again, technology can do this easily and provide the best views and analytical tools to see your entire inventory and eligible collateral whilst making it easy to act upon that data in seconds. Many firms have focused on centralisation and automation in recent years, but some still have a ways to go – or even worse – don’t know it’s something they can achieve in a cost-effective way.
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CloudMargin has helped more than 170 user groups centralise, connect, automate and optimise their collateral programs. Check out our case studies or reach out to our team to discuss your collateral program needs.