Modern tech stacks now vital as collateral market seeks resilience
A series of significant macroeconomic events in recent years have tested collateral teams' processes and systems:
- The Covid-19 pandemic and the Ukraine conflict elicited intensive periods of volatility and consequentially high margin call volumes
- The UK mini-budget tested those investors who had significant gilt exposure with plunging asset prices. Collateral teams had to address not only large margin calls, but high volumes of substitution requests and dislocation of inventory as desks rushed to sell
- The Credit Suisse and US banking liquidity crises tested firms further as the focus turned to collateral teams’ ability to understand exactly what exposure they had against each one of their counterparties, across all of the asset classes they traded, as well as through their inventory and holdings.
Changes in the global world order are currently playing out with the new Trump administration and long-term impacts are uncertain. With continued instability in the Middle East, the Ukraine war and new European leaders coming to power, it appears volatility is here to stay. Firms need to navigate these uncertain market conditions with a highly adaptive collateral program.
Automation is essential to address volatility
For many firms, a fully automated workflow—where margin calls are sent and agreed, collateral is selected, pledged, and instructed for settlement—is still not rooted in their operations. During periods of increased volatility, firms without straight-through-processing (STP) have paid a heavy price with large margin call backlogs and resulting increased risk.
Legacy technology drives market risk
Through these events, it became clear that large sections of the industry relied on underlying legacy technology stacks. Many firms were using old platforms requiring patching and upgrading and suffered from immobile data due to module-based solutions with inflexible and latent data feeds.
Data extraction and transparency
Data in legacy systems can be very difficult to extract in a timely manner. Old systems have inefficient data hierarchies and module-based platforms lead to data inconsistency. Data often needs to be stitched together to provide a consolidated and consistent view and there’s usually a high degree of latency. Firms found it difficult to understand their true risk and where assets were located at any given time and were therefore hamstrung in their ability to manage their risk and portfolios effectively.
Versioning issues
Legacy technology requires patching and upgrading, which is a resource-intensive process, particularly in larger firms with sizeable, complex technology ecosystems. Consequently, many participants with older versions of systems had not upgraded for years and didn’t have access to improved functionality or more automated workflows. To be truly resilient going forward, it’s clear the industry needs to address the significant problems caused by this dated underlying technology and the considerable risk created, especially considering the effects on the industry more broadly. The contagion risk created by these backlogs and lack of transparency has not been lost on regulators who have called on firms to automate and build broader preparedness into their collateral programs.
“Regulators are demanding firms have collateral resilience to prevent future market instability.
By harnessing cloud-native technologies, collateral management systems can automatically scale during periods of volatility, adapting to the unpredictable nature of modern financial markets. This strategy ensures tech stacks are robust enough to weather market stress whilst while remaining flexible enough to meet future challenges.”
Clinton Elston
Chief Technology Officer
Modern technology is critical for collateral resilience
Single-instance SaaS vs multi-instance patch and release
Although not new, the shift from traditional multi-instance installed systems to single-instance software-as-a-service (SaaS) models represents a major technological advancement which large swathes of the market have not yet taken advantage of. Multi-instance systems require individual installations for each user, with complex patching, upgrading and testing cycles that can take months, if not years, to complete. This approach often leaves firms operating on outdated versions of the software, unable to access the latest functionality and improvements. Perhaps worse, is the fact vendors offering these solutions must choose which clients they patch first – often prioritising commercial impact to the business over perceived risk to clients’ processes and the broader market.
Modern, single-instance SaaS models on the other hand, deliver a unified platform where updates and new features are automatically deployed to all users simultaneously. Maintenance overhead is reduced, and firms are always equipped with the most up-to-date tools to manage their collateral efficiently. SaaS platforms leverage automated testing and seamless release processes, which significantly reduce the time needed to implement new features, often making them available in days or weeks, rather than months – greatly increasing technical agility and therefore reducing risk.
Unified data structures and real-time reporting
One of the most significant advantages of modern technology is the ability to consolidate data across all asset classes and functions into a single, unified structure. Legacy systems often store data in silos, requiring extensive manual effort to stitch together a complete picture of risk and holdings. This fragmented approach can lead to inconsistencies and delays in data reporting, making it difficult for firms to react swiftly in times of market stress.
Modern systems, equipped with flexible extract, transform, load (ETL) processes and comprehensive application programming interfaces (APIs), enable real-time data integration and reporting. This ensures all data points are structured and accessible, allowing firms to generate real-time reports and dashboards that provide a transparent view of their risk and holdings.
The time to modernise is now
With increased volatility predicted to continue with the change in the world order just starting to play out, we can expect periods of market stress are just around the corner. The longer firms sit on legacy technology, the greater the risk they face—and more worryingly—the more risk they invite on the broader industry.
“To build resilience against future market volatility, firms must invest in modern technology solutions providing the flexibility, speed and transparency needed to navigate complex market environments.
By adopting microservices architecture, single-instance SaaS models and real-time data capabilities, firms can create a robust infrastructure to withstand future market stress.”
David White
Chief Commercial Officer
A modern and automated collateral management solution like CloudMargin enables collateral resilience. With full straight-through-processing (STP), firms can seamlessly navigate market volatility, freeing up their teams to focus on managing the risk. As the world’s first and only cloud-native SaaS collateral management platform, CloudMargin centralises and automates workflows, connects to the collateral management ecosystem and optimises collateral with real-time data and insights. Technology is future-proofed with a single-instance and microservices design approach, where new feature functionality and processing enhancements are developed, automatically tested and seamlessly released.
Modern tech stacks are vital as the collateral market seeks resilience – the time to modernise is now.
