Collateral management: Factors affecting the supply and demand for collateral and emerging trends and developments in the market

Abstract

Financial market participants are adjusting to a raft of new requirements that form part of the G20’s agreement to initiate substantial reform of the derivatives market following the global financial crisis. As we approach the fifth anniversary of the Pittsburg summit, the industry is transitioning from a period of rule writing and lobbying to one of implementation. The scope of the derivatives reform programme is unprecedented in the financial markets, both in scale and detail. Its effect will be far reaching and its requirements will force all market participants — on the buy and sell side — to review their overall use of derivatives, margin requirements and use of collateral, and consider the potential impact of new regulations to their trading and operations. Improving oversight, rather than banning the use of derivatives, is the most sensible way of addressing the failings of the market and the build-up of systemic risk. However, firms now attempting to comply with this changed regulatory environment are concerned about their ability to meet new demands. The key to doing so is to understand the holistic impact of the reform — which is no mean feat — and to prepare by leveraging sophisticated technology offerings as well as community based and infrastructure solutions.