Buyside Looks to Outsource Collateral Management

Terry Flanagan

The majority of buyside firms are considering outsourcing collateral management according to a new survey from Sapient Global Markets, which provides business and technology services for capital and commodity markets.

The Sapient Global Markets 2014 Collateral Survey found that 43% of buyside firms are currently using an external collateral manager, as outsourcing can help firms to become compliant with new regulations and reduce cost. The report also said that 70% of buyside firms are considering outsourcing as a collateral management strategy.

Gordon McDermid, a director of business consulting who leads the clearing and collateral practice at Sapient, told Markets Media: “The trend towards outsourcing reflects the industrialisation of services. Unless firms are of sufficient scale it is more efficient to outsource and take advantage of shared services.”

The survey was conducted in March and included responses from 40 participants including banks, buyside firms, central counterparties and custodians in North America, the UK, Germany, Switzerland and Austria.

Less than half, 45%, of survey participants strongly agreed that their institutions have efficient processes for collateral management and are well prepared for future challenges. Almost all respondents believe other institutions are unprepared and need to make significant improvements to their collateral management processes.

McDermid said: “There is an awful lot more investment to be done on automation and straight-through processing.”

Last month at the Global Securities Financing Conference Asia in Singapore organised by Clearstream and Singapore Exchange, 83.8% of delegates said they still have “much work to undertake” to move towards a more efficient collateral management solution in their institution. The 150 delegates at the conference included pan-regional institutions, infrastructures, investment banks, universal banks and central banks.

Nearly half, 49.5%, of conference delegates said they believe there will be a shortfall of eligible collateral over the next 12 to 24 months.

Stefan Lepp, member of the executive board and head of global securities financing at Clearstream, said in a statement: “There is plenty of collateral in the market globally, but much of it is fragmented and so difficult to unlock and mobilise. As a result, institutions are losing money through inefficient collateral management.”

The majority of participants in the Sapient survey agreed that regulatory requirements will have a significant impact on collateral. The survey said: “The majority of the respondents believe that collateral will not become a bottleneck in their institutions; however, many feel it will become an issue for other institutions.”

The majority of survey participants have a collateral management system that accepts non-cash collateral from clients and have processes and systems in place to support non-cash collateral posting. Government bonds, corporate bonds, covered bonds and equities are most often used as non-cash collateral.

At the Global Securities Financing Conference Asia 84.5% of delegates said triparty repos will become increasingly attractive to corporates as a replacement to cash deposits.

Related articles

  1. Ethereum-based products witnessed one of their most challenging months in September.

  2. Emerging technology may enable a powerful re-imagining of active management.

  3. Year-to-date net inflows reach $712m.

  4. Clients will have the flexibility to build custom tailored workflow solutions.

  5. Asset managers will have a single service for SFDR reporting.