Finadium report: A Buyer's Guide to Collateral Management Technology for Large Financial Institutions

Finadium’s latest research report is a review of vendors and major considerations for large financial institutions looking to purchase collateral management technology solutions. We review seven vendors and provide recommendations for evaluating sticker prices and ultimately selecting a vendor.

The leading technology vendors of collateral management solutions to large financial institutions have spent years refining their products. There are now at least seven software vendors with sophisticated solutions and a concentration of major clients. While collateral management software purchases continue to be driven by regulatory change, there is a growing awareness that users can also take advantage of profit making and loss avoidance opportunities that more than compensate for the cost of systems and maintaining the associated infrastructure.

The vendors themselves have also matured, with every vendor in our survey fleshing out their offerings and increasingly their connectivity to third party service providers, CCPs and other market infrastructures. This is an important development; collateral management does not live in a bubble, but rather is an integral part of the financial markets ecosystem. Vendors recognize this and are now at the point of prioritizing these connections. The result is systems that are much more central in the collateral process and effective for their clients. Vendors are also buoyed by repeated discussions of collateral management in the press and by regulators at the highest levels of policy making.

Collateral management can include multiple functions, but all vendors provide technology to facilitate collateral movements, integration with other parts of the collateral management infrastructure, reporting, and some form of optimization – although the latter can mean many things in todayʼs market. Some vendors are now expanding their collateral platform to capture more trading functionalities, notably through pre-trade analytics that show the cost of collateral requirements before a trade is made.

Deciding whether to select a collateral management vendor is a binary decision, whereas how much a system is worth to each individual firm is more complicated. An evaluation of collateral movement costs and lost opportunities in optimization may show annual savings of just US$100,000 a year or millions every month. We provide decision metrics around evaluating system costs versus projected benefits.

In this report, Finadium has reviewed seven vendors of collateral management technology to identify their strategic positioning and functionalities. The report is intended to assist buyers who work for large financial institutions to narrow down products that could be a potential best fit for their organizations. We do not provide a ranking of systems; it is our experience that there are enough differences between providers that a short-list can be created for multiple categories and client needs. Rather, we aim to provide enough details for managers to get past the first round of due diligence and start scheduling meetings with potential good matches.

Please visit the Finadium website here for more information and the table of contents.

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