Why the Buy-side Should be Challenging Their Brokers

A lot has changed in the financial world since 2008; regulatory pressure sees buy-side firms alter the way in which they conduct business as well as realigning their priorities; mundane tasks once seen as back office duties, collateral management for instance, now hold much greater importance and significance for any buy-side or sell-side firm. Moreover, because capital markets have experienced a revolution driven by a radical change in market structure and the introduction of technology, it is more important than ever for buy-side firms to challenge their brokers.

For the buy-side to have more clarity over their decisions, they need to be more in control over their collateral management process. To do this, it is vital that any firm challenges the status quo, independently challenging and validating the data set for them from their brokers. Put simply, firms should be proactive about the calculation of a margin call or recall, instead of blindly accepting the brokers’ numbers. This increased control over the collateral management process also means that the buy-side can better prepare themselves for future margin calls.

Ultimately, to operate an efficient yet controlled company buy-side firms need to be able to understand what is presented in front of them; counterparty risk, uncollateralised risk, liquidity risk, etc., but most importantly validate this data, safe in the knowledge that the collateral is eligible, correctly priced and positions are accurately valued. This is all indispensable to the decisions businesses have to make in the next phase of the collateral management process and allows firms to be in control of their own exposures.

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