Collateral Optimization Advances with “Pseudo” Interoperability
Enterprise optimization is a reality not a dream, as large firms grapple with many billions in collateral assets navigating across multiple triparty agents, bilateral activity and through numerous CCPs in various jurisdictions. We hear from Bimal Kadikar, CEO at Transcend, about what that looks like right now for firms going through the necessary operational maneuvers and how functional interoperability plays a role while the industry tests cutting edge collateral mobility technologies.
Kadikar separates the current state of enterprise optimization into two distinct yet connected phases, with one characterized by optimizing within firms’ businesses, such as across global equities, and another between, for example equities, fixed income, uncleared and cleared derivatives and other similar businesses.
“Enterprise optimization in the most classic and the purest definition would be about (optimizing) across all of these businesses, and that is a daunting task. That’s a journey not a destination. We know many pursuing it but don’t know of anybody who has reached that just yet,” Kadikar said.
The first phase, which represents the bulk of Transcend clients, requires closer collaboration across front, middle and back offices, a long-standing trend that is now in play and resulting in “double-digit millions” in savings and benefits per year. Further on is cross-business optimization and Transcend has a few clients starting to do this across global fixed income and equities balances, some which are in excess of the $500 billion mark.
While global systemically important banks are at the forefront, Kadikar noted that it’s not just about the asset quality and funding costs, there’s also balance sheet considerations driven by liquidity ratios such as LCR and NSFR that make “reasonably critical banks…very keen to get the optimization in the right places.”
“The ambition of that optimization may vary, but if you have a few billion dollars in collateral, which a large number of players in this space do, they all benefit from optimization,” he said.
Optimization vs. interoperability
Major challenges were overcome to get to this stage, and Kadikar highlighted connectivity and interoperability in particular. Interoperability has been an industry goal for decades, with numerous initiatives attempting to make it happen with limited success.
“The reasons and the factors that are affecting the speed of that development are complex and they do have many commercial as well as legal, regulatory factors that are not easy to solve,” he said, adding that this is why the team has taken a more pragmatic approach and not waited on the industry to solve the challenges holistically.
Transcend has created technologies to achieve interoperability “in a pseudo manner” by building real-time connectivity with all major triparty agents and CCPs across the world while also tapping into clients’ existing infrastructures, he explained.
In October, Transcend is officially launching a joint collateral optimization service with Euroclear. According to the release: “Available through existing Euroclear connectivity, the new service will easily integrate critical data for smart decision making and settle optimized collateral allocations. By leveraging Transcend’s technology, clients will be able to configure optimization scenarios, include external collateral pools to determine the best collateral use at Euroclear and perform ‘what-if’ analyses on specific constraints.”
Kadikar was keen to note that the cross-venue optimization capabilities are designed for confidentiality, with Transcend’s algorithms operating at an arm’s length from the triparty infrastructure.
“Euroclear doesn’t get to see what balances a client may have at another triparty agent, and that independence is a critical differentiator,” he explained. “We have been very careful about that architecture, as well as a business decision around that independence.”
At the same time, the Transcend team is eyeing developments in blockchain and distributed ledger technologies, such as the Canton Network, and also taking part in a feasibility study for collateral mobility with HQLAX and other market heavyweights. It is slow moving and there is no specific timeline, but the potential remains compelling.
“If we could move freely the assets from one triparty agent to the other triparty agent with low friction and high predictability, and (in) an efficient manner, then that would be very good for the industry and we would connect to that instead of us doing that mobility directly with our client in a hard way,” he said.
Authored by Anna Reitman and originally published on Finadium.com, September 16, 2025.
