Collateral systems provider 4sight and business and IT consultancy Rule Financial have published a new research paper on buy side collateral management. The paper, “Buy Side Collateral Management: Challenges and Opportunities”, is based on research indicating that many financial firms are still to begin preparations for collateral management of centrally cleared derivatives.
4sight and Rule Financial conducted a survey asking 25 firms across the buy side and sell side how prepared they were for the new operational and technological complexity around collateral management of cleared OTC derivatives.
The survey found that 4% of respondents had completed preparations while 46% were in the process of implementing their target operating model. A further 27% had defined their target operating model but had not started implementing it. Worryingly, 23% had not yet begun to define their target operating model.
The paper details the new challenges around the collateral management process. In addition, it looks at how buy side firms can ease the transition to the new cleared collateral model. The paper also discusses the technology solutions available in the market to support the new more demanding margining process.
The paper can be accessed from: http://www.4sight.com/products/4sight-collateral-management/collateral-optimization/buy-side-collateral-management-whitepaper
“As ever, in solving the collateral conundrum, there is no substitute for mobilising as soon as possible,” comments Martin Seagroatt, one of the paper’s co-authors. “For those who have yet to decide on a collateral management strategy, the risks are becoming even greater for operating with a substandard, non-optimal system; incurring the high costs associated with non-compliance and inefficient tactical solutions. Firms that take an active approach and see collateral management as a core competency will outperform those taking a more passive stance.”
