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The age of collateral convergence
Journal of Securities Operations & Custody,
14
(3),
194-205
(2022)
Abstract
This paper investigates how collateral management is changing as more buy-side firms engage in the practice. Services are being adapted to meet the unique characteristics of the buy side, to ensure regulatory compliance, improve operational efficiency, manage risk, maximise trading opportunities and improve liquidity. UMR has been the primary driver for the increased buy-side focus on collateral management. With phase six being imposed in September, the smallest in-scope firms will need to manage and optimise collateral for the first time. In addition, CSDR means all market participants need to manage collateral to avoid settlement fail penalties. Collateral management is also needed to capture opportunities, by freeing up capital across an organisation. It is becoming engrained in buy-side treasury functions, with the development of pre and post-trade analysis to determine the best use of assets. Buy-side firms, which are less heavily regulated and internally divided into silos, can take a far nimbler, dynamic approach. This means providers must offer a wider range of capabilities, including peer-to-peer arrangements, and counterparty management will become a key differentiator. Technology and digitalisation will play an increasingly key role in services. Smaller firms rely heavily on automation to contain costs and sophisticated data analytics tools to react quickly to alpha-generating opportunities. In addition, the trend for ESG investment means a technological solution is required to allow asset owners to apply the same exclusionary criteria to collateral. Firms may opt to build in-house, select best-of-breed solutions or fully outsource to a holistic, front-to-back provider; smaller firms are demonstrably more likely to opt for the latter.
Keywords: collateral; UMR; peer-to-peer; counterparty management; automation; ESG
The full article is available to subscribers to the journal.
Author's Biography
Staffan Ahlner is head of collateral management services at State Street. Collateral+ provides tri-party, collateral administration and collateral analytics to the market. This unit is part of the Financing and Collateral Solutions team within State Street Global Markets. Staffan joined State Street from BNY Mellon where he ran the international tri-party business. He joined BNY Mellon in 1998, playing a major role in the build-out of its tri-party business as well as managing the clearing business for EMEA. Prior to BNY Mellon, Staffan worked at Northern Trust in their Investment Manager Liaison Group. Staffan has a Master's degree in economics from Umea University and a postgraduate degree in accounting and finance from the London School of Economics. He has also spent time at the Norwegian School of Economics. State Street Corporation (NYSE: STT) is one of the world's leading providers of financial services to institutional investors including investment servicing, investment management and investment research and trading. With US$43.7tn in assets under custody and/or administration and US$4.1tn in assets under management as of 31st December, 2021, State Street operates globally in more than 100 geographic markets and employs approximately 39,000 worldwide (assets under management as of 31st December, 2021 includes approximately US$61bn of assets with respect to SPDR products for which State Street Global Advisors Funds Distributors, LLC (SSGA FD) acts solely as the marketing agent. SSGA FD and State Street Global Advisors are affiliated).
