Depending on
the level of preparation, it could be either of the above. Traditionally collateral
management was a back office function with little or no impact on the front
office. But the Dodd-Frank Act (DFA), European Market Infrastructure Regulation
(EMIR) and Basel III require participants to collateralize trades and other
transactions.
Broker-dealers
have been collateralizing clearing and guarantee funds for many years. But
buy-side firms, such as hedge funds and other fund managers, have not had the
same experience. They will now be required pledge collateral to support their
transactions. If they don’t have appropriate or sufficient collateral they will
need their custodians or clearing brokers to locate the needed collateral.
This requires
custodians, clearing brokers and industry service organizations to enhance
their services. As such it is a new source of revenue to industry service
organizations and a new cost for their clients.
Electronic
interfaces among the industry service organizations as well as investor will be
critical to ensure that transactions are collateralized at minimal costs.
What are the critical issues facing
your firm?
How will you optimize
the collateral you have?
What are the
available alternatives to improve collateral?