Financial Services Firms Confronting Challenges of New OTC Derivatives Rules, According to Research from Finadium

Singapore, London New York and Boston, MA - 15 November 2011

- Market participants planning for new collateral management systems to manage the complexities of a “mixed” clearing environment

- Collateral management emerging as new feature in pre-trade decision making as well as counterparty risk management tool


A new report published by Finadium, a research and consultancy firm, and commissioned by Omgeo, the global standard for post-trade efficiency, has found that although market participants are increasingly concerned about coping with the complexities of collateral management, they agree that the principals of product scope, timely reporting and liquidity are all critical. Within these three general areas however, market participants have substantial room for disagreement.

The report, “Strategies for Successful Collateral Management in the Age of CCPs: Outsourcing, Asset Growth and the Role of Technology”, is based on interviews with senior executives at banks, hedge funds and asset managers.

According to the report, financial services firms believe that the increasing complexity and diversity of collateral management will drive them towards third-party software solutions and outsourced service providers. Among the interviewees, the appropriate use of technology was acknowledged as the only real solution for effective collateral management in a new “mixed” bilateral and central clearing environment, and was seen as playing an integral role for firms looking for a balance between revenue optimisation, relationship management and human capital.

The majority of participants in the research expressed concern with the proposed new rules in the OTC derivatives space, but were aware that most standard OTC derivatives will move to a central clearing model and more collateral calls will happen on a daily basis. These proposals are forcing participants to confront their challenges now, rather than waiting for the changes to take full effect.

Effective collateral management is becoming increasingly important as a feature in pre-trade decision making, where the costs of collateral may affect where, whether and how to engage in a trade, as well as being a means to manage counterparty risk.

Josh Galpher, Managing Principal, at Finadium said: “While regulators work to finalise the rules for OTC derivatives, firms are simultaneously looking at the best processing models to cope with the regulatory changes. Many larger institutions have started to make investments in new collateral management systems and this is likely to increase over the next 18 months when there is further clarity around the rules.”

Martin Loxley, Director of Collateral Management, at Omgeo said: “Market participants are concerned about the revenue impact of new regulations. Flexibility in the systems adopted by these firms is a key consideration and Omgeo’s collateral management solution, ProtoColl®, is designed so that it can be adapted to respond to regulatory changes as and when these occur.”

Omgeo ProtoColl provides an end-to-end, event-driven collateral and margin management workflow solution for clients to identify, negotiate and satisfy daily margin calls. With ProtoColl, clients gain tremendous insight into their firms’ exposures and risk profiles. The offering handles all margining requirements, including OTC and exchange traded derivatives, repos, securities lending, leveraged trading, emerging markets and loan facilities. In addition, clients benefit from ProtoColl’s efficient, quality implementation process where users can be live in less than three months.

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