The recent decision by the US Commodity Futures Trading Commission to postpone enforcement of variation margin rules for non-cleared OTC derivatives transactions reflects the scale and complexity of the collateral management challenge facing buy- and sell-side market participants. CFTC chairman Chris Giancarlo’s admission that “as much as 90%” of end-users are not ready to meet the new requirements might give some welcome relief to market participants, but this extra breathing space does not change fundamental realities. The need to manage, monitor and mobilise collateral more effectively is a key strategic priority and as such it is driving change in commercial relationships and service propositions across the value chain.
Aware of the enormity of the task, all firms are looking around the market to see who is best placed to help them meet their own particular collateral challenge. Broker-dealers are looking to triparty agents, asset managers are looking to custodians, custodians are looking to market infrastructure providers.
To a large extent, the key to effective collateral management is reducing friction and increasing transparency in the underlying processes. Automation, standardisation and collaboration all play a role in the industry’s efforts to establish best practices for collateral management in the post-crisis world. As reflected in Moving with the times posted on the Euroclear website, we’re continually evolving our services to provide clients with more flexible access to collateral assets, while helping them to exercise control and choice.
