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2022 Outlook from Todd Hodgin & BJ Marcoullier

What are your expectations for 2022?

Within the collateral markets, we expect to see an acceleration of electronification and automation. Regulatory drivers such as UMR are increasing demands on scarce collateral resources and, as a result, transparency of liquidity pools and operational efficiency are now critical competitive differentiators. While the equity and debt cash markets achieved scale through low touch execution years ago, the repo and securities lending markets are now facing a similar evolution via automated decision-making.

What trends are getting underway that people may not know about but will be important?

  1. ESG: While ESG has ballooned in the investing market, ESG considerations within the collateral markets are only beginning to gain momentum. Last year saw an increase in green repo transactions and ESG criteria governing which assets would be accepted as collateral. We expect these trends to accelerate in 2022, creating new operational challenges for both sell-side and buy-side firms.
  2. Cloud & SaaS Solutions: Although the consumer economy was quick to adopt cloud solutions, usage by banks and broker-dealers is only recently increasing. As a result, SaaS adoption is expanding in this market as firms gain confidence in providers being able to meet strict data security requirements.
  3. Digital Assets & Tokenization: Blockchain-enabled solutions are receiving a lot of attention throughout the financial services industry. Firms are investing in these solutions to reduce the frictions associated with transferring asset ownership and custody, increase liquidity with settlement cycle reductions, and reduce operational burdens. While these are long term initiatives that will take time for market adoption, these investments will continue.

What industry trends have been prominent but are now fading (or will soon fade)?

As collateralized products such as repo or securities lending grew, firms built standalone internal systems to support their trading and financing activities. However, as these markets matured, new vendors emerged, allowing firms to reduce maintenance costs, upgrade capabilities, and integrate with the broader market. As a result, technology is no longer an “either/or” build versus buy decision. Today, the firms that find the right balance of internal and external solutions will be the ones to create fully integrated, comprehensive, and end-to-end processes.

What are your customer’s pain points and how have they changed from one year ago?

In the last year, clients have experienced strain as a result of increased trading and margin volume due to volatility within increasingly complex markets. In particular, human capital and federated infrastructure are key pain points. More than ever, clients are looking to Transcend to improve risk-adjusted returns by integrating their collateral ecosystem, breaking down legacy siloed infrastructure and automating enhanced decision-making across collateralized businesses.

This article was originally published on Markets Media.