BNY Mellon analyses new collateral management tools
05 August 2016 New york
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Market participants need to become more efficient when financing their transactions, according to BNY Mellon, whose new report outlines the key strategies to adopt in collateral management.
The report, Collateral Solutions for a Changing Market, pinpointed peer-to-peer relationships as one avenue for institutional investors to pursue given that prime brokers are becoming more selective in who they work with in financing.
Michelle Neal, president of BNY Mellon Markets, summarised: “Market participants need to be more efficient when financing transactions, which means they need to allocate the least expensive collateral to each trade, possess a full view of which collateral is available and which is being used, and applying efficient collateral management techniques to a variety of transactions.”
“Simply put, optimising collateral management means having the right assets, in the right place, at the right time.”
As well as peer-to-peer-relationships, the triparty model continues to be a suitable means of collateral management, according to the report. Although it has traditionally been used in repo and securities lending, BNY Mellon has noted the model being used to cover a range of exposures and obligations.
Market participants should consider using a range of tools, including collateral pledge structures, structured notes and the cross-border allocation of Japanese government bonds as part of an overall strategy to optimise collateral and find efficiencies.
Many participants are also new to collateral management, with initial margin and variation margin requirements bringing the need to post collateral to their businesses for the first time.
They are struggling with data, cash and inventory management, making it easier to deal in cash collateral, according to BNY Mellon.
“The collateral management and segregation space today is quite dynamic. These changes are putting operational pressures on firms and requiring them to take on new activities,” commented Jim Malgieri, head of collateral management and segregation at BNY Mellon Markets.
“There is a learning curve with the changing requirements as all market participants adapt and retool their operations to enhance their processes and create efficiencies.”
The report, Collateral Solutions for a Changing Market, pinpointed peer-to-peer relationships as one avenue for institutional investors to pursue given that prime brokers are becoming more selective in who they work with in financing.
Michelle Neal, president of BNY Mellon Markets, summarised: “Market participants need to be more efficient when financing transactions, which means they need to allocate the least expensive collateral to each trade, possess a full view of which collateral is available and which is being used, and applying efficient collateral management techniques to a variety of transactions.”
“Simply put, optimising collateral management means having the right assets, in the right place, at the right time.”
As well as peer-to-peer-relationships, the triparty model continues to be a suitable means of collateral management, according to the report. Although it has traditionally been used in repo and securities lending, BNY Mellon has noted the model being used to cover a range of exposures and obligations.
Market participants should consider using a range of tools, including collateral pledge structures, structured notes and the cross-border allocation of Japanese government bonds as part of an overall strategy to optimise collateral and find efficiencies.
Many participants are also new to collateral management, with initial margin and variation margin requirements bringing the need to post collateral to their businesses for the first time.
They are struggling with data, cash and inventory management, making it easier to deal in cash collateral, according to BNY Mellon.
“The collateral management and segregation space today is quite dynamic. These changes are putting operational pressures on firms and requiring them to take on new activities,” commented Jim Malgieri, head of collateral management and segregation at BNY Mellon Markets.
“There is a learning curve with the changing requirements as all market participants adapt and retool their operations to enhance their processes and create efficiencies.”
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