Collateral Management

2022 Financing and Collateral Symposium

The buy side is engaging collateral management more than ever, taking advantage of technological developments to meet their expanding requirements.

March 2022

For the second year in a row, we brought together more than 30 leading experts from across the collateral management, financing and FinTech sectors to discuss market developments.

Here are our top five takeaways from our two-day conference.

1. Volatility emphasizes the importance of flawless automation

The implementation of Uncleared Margin Rules (UMR) is demonstrating the scale of the standardization needed across the industry. Automation is only possible by standardizing data, processes and the treatment of events. For example, volatility caused by unforeseen geopolitical incidents inevitably increases margin calls and requires automated processes to work seamlessly. Automation across all asset classes is key to ensuring the efficient mobilization of assets and data, while interoperability is essential to optimization.

2. Digital assets will have an increasing role once challenges are overcome

Blockchain technology, including the tokenization of assets and crypto-currencies, will play an increasing role in collateral management by providing new pools of liquidity. Institutional investors are already interested (or invested) in digital assets and the next generation of professionals will transform the sector. Regulators are behind the curve but are now working quickly to address and mitigate risks. Integrating digital assets and ESG considerations are perhaps the two most pressing areas of innovation in the industry.

3. ESG is set to impact lending supply and borrowing demand

ESG is a major trend in fund management, and it has begun to spread into securities finance transactions. Market analysis already shows greater willingness to hold and lend assets with high ESG scores and short assets with low ESG scores. Beneficial owners are also increasingly interested in stewardship, so there are added costs in terms of recalls for proxy voting. There is a growing need for ESG-related tools.

4. The buy side is open to innovative solutions, including peer-to-peer

The combination of increasing buy-side demand, not least from firms in-scope for UMR phase 6 in September, and tightening liquidity means market participants are increasingly considering all options, including alternative products. Buy-side firms need a stable and resilient collateral management solution that spans from repo and securities lending to sponsored repo and peer-to-peer structures. Banks are well placed to offer these at scale and the buy side benefits from reduced costs and more sources of assets.

5. Rising inflation and interest rates will impact liquidity

Inflation and rising rates are going to have substantial impacts on securities finance and collateral markets. The monetary support deployed to offset the economic impact of the pandemic is being unwound and this will inevitably reduce liquidity. Risk management and liquidity will be key considerations as we enter a new and more constrained market environment, leading market participants to explore all available sources of funding.