Buy Side Keen on Collateral

Terry Flanagan

The onset of regulations in OTC derivatives has created a groundswell among asset managers and dealers to develop solutions for the management of collateral.

“One of the bigger industry drivers is the number of new and evolving regulations, which are placing cost and uncertainty onto the business model,” said Chris Momsen, executive vice president of global sales and solutions management at Advent Software. “It’s forcing buy side firms to interact with a more diverse set of counterparties. In the old days, you could place a trade through a single prime broker, now with central clearing you can no longer do that.”

With over 25 prime brokers and 500 hedge funds in its customer base, Advent is able to get a good sense of what is needed as the landscape changes.

“Traditionally, we allowed buy side firms to verify assets with a prime broker and custodian,” said Momsen. “As we move forward, we’re enabling them to also view margin and collateral data, so they can get granular information in an automated fashion.

With an ongoing market focus on risk management, liquidity control and operating efficiency, there is an increased demand by hedge funds and prime brokers to automate the margin and finance cost process.

Syncova Solutions, a company acquired by Advent in 2011, provides margin management and financing software to hedge funds and prime brokers. The acquisition has enabled Advent to extend its footprint within the alternative asset industry with margin and finance calculation, optimization and reconciliation.

“Through our portfolio accounting and trading systems, we have long provided the capability to add new counterparties without adding a new interface,” said Momsen. “We are now providing that capability to Syncova.”

Separately, Pershing, a BNY Mellon company, has announced enhancements to its PrimeConnect application, most notably adding a link to Pershing’s Fully Paid Securities Lending program.

The connection allows hedge funds to transfer fully-paid securities from BNY Mellon to Pershing, at which point the securities are available to be borrowed by Pershing. It also allows hedge fund managers to be able see the earning potential for fully paid assets in the Prime Services dashboard on NetX360, Pershing’s technology platform.

Pershing’s PrimeConnect provides hedge fund managers, who use a bank custodian, to hold unencumbered assets with transparency and control of collateral selection and movements. Its counterpart, PrimeConnect40, is the technology for ’40 Act fund managers using the tri-party structure to support alternative strategies.

“PrimeConnect and PrimeConnect40 are integral parts of Pershing’s prime brokerage offering built on our counterparty strength, innovative technology, uncompromised commitment to our client’s business and an exceptional level of transparency,” said Gerry Tamburro, managing director at Pershing LLC. “PrimeConnect and PrimeConnect40 can help increase operational efficiencies for hedge fund and mutual fund managers by allowing them to move collateral in an efficient and transparent way.”

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