SunGard: Collateral Optimization: The Next Generation of Collateral Management?

The post-crisis banking regime has obliged financial institutions to make connections between previously distinct classes of risk. The traditional view of a sequential flow of risk has been replaced by an infinite, interconnected loop with collateral and liquidity at the center alongside risk weighted asset considerations.

This change is being driven by regulations including the European Market Infrastructure Regulation (EMIR) and the Dodd-Frank Act in the United States, together with upcoming rules of Basel Committee on Basel Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) on margin requirements of non-centrally cleared derivatives.

To address this, the industry is moving towards a trend of centralized collateral management functions. This new paper created by SunGard and Sapient explores this new shift in collateral management from an operational cost center into a profit center located in the front office and looks to address innovation in collateral optimization techniques. It introduces the idea of a collateral management lifecycle and provides a first overview of pre-trade collateral optimization, a concept that builds on the latest cheapest-to-clear approaches.

The paper is available for download here.

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