- Tokenized assets can help streamline collateral management and strengthen capital efficiency, risk and liquidity management.
- Successful adoption will rely on integration into current systems and embrace of new technologies like blockchain.
- Clear regulatory standards are essential to foster innovation and ensure compliance in this evolving space.
- Momentum in tokenized asset adoption is being driven by collaborative industry projects that demonstrate benefits.
Collateral management is in the spotlight as financial firms seek to optimize amid an evolving regulatory and operating environment. Risk, capital efficiency and liquidity considerations are growing more complex as the cost of capital rises and Uncleared Margin Rules (UMR) come into enforcement in more global jurisdictions. The bottom line impact is more collateral is being exchanged for cleared and uncleared trades.
Tokenization and digital assets will be crucial to solving these challenges, offering access to a wider pool of collateral, enhanced collateral mobility, optimization and overall standardization. These topics and more were the focus of a recent ISDA webinar “Navigating the New World of Tokenized Assets: Collateral Mobility and Optimization” that featured the panelists:
- Sophie Marnhier-Foy, Vice President, Nasdaq Financial Technology
- Stephen Ashworth, Chief Commercial Officer, Tokenovate
- Thomas Sullivan, Managing Director, Société Générale
- Kevin Khokhar, Head of Investment Funding Solutions, T. Rowe Price
Takeaway 1: Mobility and Flexibility are Key
“The rise of digital assets and tokenization gives firms the opportunity to look at their entire collateral ecosystems and find ways to leverage new technologies to improve counterparty credit risk, operational risk and processes around
collateral management. There’s a big opportunity to save time and enable staff to spend more time on high-value tasks, said Marnhier-Foy.
Takeaway 2: Regulations are Evolving
“In stress scenarios you need to have a framework where yoy might be able to look beyond cash and the high-quality liquid assets (HQLAs), and into other types of assets to mobilize as and when you need them…[tokenization] really opens this door to increasing the flexibility of collateral types,” said Ashworth.
Takeaway 3: High Ceiling for Operational Improvements
“I think from a post-trade stance, [tokenization] compresses the whole entire life cycle into potentially T+0 and that’s a really effective way to manage your risk from an operational perspective and from a trading perspective,” Khokhar said.
– Kevin Khokhar
Takeaway 4: Industry Projects Create Momentum
“[By bringing together] various parties, both buy side and sell side, within the global framework, [The Great Collateral Experiment] demonstrated the different types of assets that could be used and connected together seamlessly,” said Sullivan.
Participants also discussed adoption challenges and what needs to happen for progress.