Robust collateral management: What is it? Why is it important? How to get there!


Collateral management is not a new topic – it has been around for many years. However, it has traditionally been handled as an auxiliary back office function of low importance – especially at buy-side firms. This was not a big problem since just a minority of transactions were actually collateralized and the operational burden of margin calls was low due to high thresholds and minimum transfer amounts.

Today the situation has changed dramatically. Reasons are manifold but all relate to the worldwide regulatory tsunami and recent developments on financial markets. In general, institutions will need to deliver much more collateral of higher quality while being forced to deliver it much quicker, at least on a daily basis or even multiple times a day. At the same time the assets that can be delivered as collateral are getting scarce and keep loosing value while haircuts on those assets are increasing.

Given this dramatically changed situation, institutions around the world have to look carefully at their existing collateral management strategy, processes and systems and assess whether they are ready for the challenges ahead.

The ultimate goal to aim for is robust collateral management. But what does robust collateral management really mean? What are the alternatives of achieving it? And what is the best approach to choosing a sustainable solution?

Our whitepaper intends to help institutions with this crucial challenge by first looking at the contributing factors to the changed situation, investigating various reasons why existing collateral management processes are typically not ready for the challenges ahead, explaining what robust collateral management really is, comparing the alternatives of achieving it and finally looking at practical approaches for getting to a decision.