Author: Electric Pulp

ESG Collateral Management and Trading: Preparing Today for Tomorrow’s Requirements

Posted on by Electric Pulp

Members of the collateral ecosystem are beginning to explore how best to serve the needs of investors with ESG funds. Some institutions are starting to manually support ESG in trading and collateral processes such as green bond baskets in repo or excluding securities in the agent lending market. As beneficial owners provide stricter collateral guidelines in line with their ESG policies, agent lenders and the broader collateralized markets must consider how to best incorporate ESG criteria into collateral management workflows. A guest post from Transcend.

Framing the ESG conversation
ESG requirements broadly impact the financial services value chain from determining which assets investors hold in their portfolios, to what assets and at what rates those portfolios will be financed, to downstream collateral management processes that support securities lending, collateral pledging, and asset servicing.

ESG investing receives the most attention from investors, regulators and the media. ESG-branded funds are seeing increased capital flows and continue to attract new investors. As a result, regulators are working to govern this expanding market and are publishing additional regulatory guidelines such as Europe’s Sustainable Finance Disclosure Regulation (SFDR). An increased regulatory focus includes standardizing ESG financial disclosures to ensure investors utilize a common framework for reporting. The media often conflates ESG concerns across greater transparency, the practice of greenwashing of legacy assets and the use of appropriate metrics across the industry.

Beyond ESG investing, early adopters are beginning to extend the ESG conversation to securities financing across securities lending, repo and OTC derivatives. Recent repo transactions associated with ESG goals have evidenced the ability to tie the economics of the trade to ESG performance, and green bond baskets can be financed at preferential terms under what is sometimes referred to as green repo. As an example, Deutsche Bank structured a $300 million deal with Turkey’s Akbank where the repo interest rate was based on Akbank’s gender balance, electricity sourcing and no greenfield coal power plant loan origination. This is the beginning of ESG financing: in a few short years, there may well be a new industry standard that defines these ESG repo transactions with a large community of funders.

The acceleration of ESG investing and the emerging ESG financing market is starting to trickle down to collateral management processes. These processes have long governed how securities are lent to counterparties for short covering, proxy voting and the use of collateral to meet margin requirements across products. For example, as more investors express the desire to reflect their ESG goals in proxy votes, recall mechanisms have been tightened to support specific investor requirements.

However, despite the growing interest in integrating ESG into securities financing, securities lenders, even those with ESG funds, do not uniformly report that ESG is a factor in their securities lending programs today. Recent research from Finadium revealed that 53% of large asset managers say that ESG is a consideration in proxy voting linked to securities lending, but only a handful have fully integrated ESG through the lending and collateral process. This is expected to change as beneficial owners require firms to implement their ESG requirements with the same automation as they do today with credit rating and concentration limit requirements. Supporting these clients means tying individual securities to relevant acceptance criteria. Transactions like the Deutsche Bank and Akbank arrangement will need to be codified across hundreds of thousands, if not millions, of equity and fixed income securities.

The future assimilation of ESG in collateral management necessitates flexible technology architectures that can support today’s processes yet scale to meet future requirements across multiple counterparties that have implemented their ESG frameworks differently.

Exclusion lists are only the beginning
The current mechanism to ensure that collateral is in line with ESG expectations is to create exclusion lists that specify certain assets that do not meet ESG criteria. This could include oil and gas stocks or bonds linked to mining companies. Given the opportunity for customization, the exclusion list methodology allows counterparties the flexibility to implement their own internal ESG policies. While this may not tie directly to a recognized ESG scoring mechanism or metric, it enables firms to support varying client ESG needs across counterparties. The model is not scalable however: short-term requirements are limited, but the exclusion list methodology requires manual setup and ongoing maintenance, which is unrealistic for future growth in a market with ESG standardization.

Exclusion lists also impact cash managers in collateral. Some cash funds have declared themselves to be ESG-compliant. A government money market fund, for example, may be considered ESG-friendly by default if US Treasury bills or other developed country government bonds are not seen as going against ESG principles. As a result, if a cash fund’s ESG status is based on excluding certain types of transactions altogether rather than setting up exclusion lists on a per-security basis, the exclusion list methodology will be insufficient.

A scalable ESG collateral process is critical but not easy
Given the limitations of exclusion lists and growing popularity of ESG metrics and scoring, the future of the ESG collateral management ecosystem must be able to integrate recognized, trusted, and readily available ESG data. This integration will allow firms to evaluate each asset against granular counterparty criteria to determine whether it is ESG-eligible. The process requires the asset to be tagged with metadata that indicates granular ESG metrics across the E, S, and G components, including sub-criteria such as the percentage of women on the board or carbon emissions/intensity (see Exhibit 1).

Sample ESG Collateral Criteria

Recent studies from the United Nations Environment Programme Finance Initiative, the Network for Greening the Financial System and others note that while methodologies for assessing climate risk are exploding, they all rely on data that may or may not be readily available. While large data providers and startups alike are building out ESG data frameworks either directly or via acquisition, none are at the point where they cover all asset classes and metrics (see Exhibit 2). Nevertheless, the accessibility of ESG data will continue to grow as time progresses.

Without clear reporting standards from issuers, standardization on which metrics should be trusted and reliable data providers, incorporating ESG metadata in a scalable fashion will be a major challenge. A holistic approach provides the granularity that firms need to not only support specialized exclusion lists from firms who use internal criteria but also allow collateral givers and receivers to use established criteria to test whether collateral is allowed. While today it may be possible to manually manage new collateral requirements and utilize legacy collateral technology, even modest growth in ESG requirements from beneficial owners will outpace current capabilities. Soon firms will need to integrate ESG data to ensure they can meet ESG expectations while continuing to support collateral optimization and straight-through-processing efforts.

The pivotal role of inventory management
Some market participants already tag metadata such as a security’s origination, whether it can be rehypothecated or not, and its credit rating. However, adding further metadata, ESG included, requires a higher degree of sophistication. To successfully fold ESG capabilities into collateral trading, funding and management workflows, market participants need an inventory management platform that can support ESG data in varying formats. Otherwise, they will need to outsource the process entirely to service providers such as tri-party agents.

The collateral industry must evolve to meet rising ESG challenges. While today the industry sees bespoke requirements from particular counterparties, soon firms across the board will transition ESG collateral conversations from theory to action. First, collateral receivers like agent lenders and cash providers will require validated and actionable ESG data on inventory holdings. Then, collateral givers and risk managers will follow. These are the levers that will force fast movement for ESG collateral management.

This article was originally published on Securities Finance Monitor.

Collateral Technology: Moving Up the Strategic Value Chain

Posted on by Electric Pulp

In the Global Investor Collateral Management in 2022 Guide, Bimal Kadikar, founder and CEO and BJ Marcoullier, head of sales at Transcend discuss how the role of technology within collateralized businesses has evolved over the past 20 years and what future technological capabilities will look like in years to come.

The capital markets value chain consists of an intricate ecosystem of activities conducted between various groups within a firm as well as across several external market participants. With the volume of these activities increasing alongside a growing network of market players, the last 20 years has seen an accelerated investment in technology to alleviate the growing complexities.

Perhaps no market better evidences this evolution than that of electronic trading for Equities, FX and liquid Fixed Income securities Large increases in trading volumes, federated trading venues, regulatory requirements, and diverse market participants necessitated the automation of trading processes, including market making, sales, transaction booking, and clearance and settlement. Electronic trading platforms have evolved to the point where now millions of trades are executed daily using technology that streamlines the distribution of asset prices, adjusts offers, books trades, reconciles transactions, and updates risk limits. As a result, front-office professionals have redirected their focus to higher-order priorities such as market focus, pricing strategy, and risk mitigation. 

A similar evolution is occurring within the collateral markets. 20 years ago, collateral technology played a supporting role by automating more routine tasks, such as identifying margin requirements and creating workflows with clients to track and exchange margin often specialized by asset class. However, the technological capabilities of collateralized businesses are increasingly moving up the strategic value chain to intelligently automate daily decisions, providing benefits beyond operational efficiency. 

Why Now?

The financial credit crisis of 2008 and subsequent regulatory forces have pushed financial firms to significantly improve their collateral and liquidity tracking and reporting requirements. More recently, coming out of COVID-19, firms recognize the criticality of digitization and automation more than ever before. With ongoing market volatility, front-office and operations resources have struggled to satisfy increased collateral requirements resulting from high frequency margin calls and its impact on overall funding and liquidity positions. Because technology has progressed in recent years to support the integration of real-time data into automated workflows, firms leveraged technology to automate some daily margin and collateral decisions. While these capabilities may have been around for a few years, COVID-19 has created the urgency firms needed to prioritize implementations of smart technology. Now, many firms have systematized key collateral activities including determining the best funding transactions, providing attractive pricing to clients when their transactions create efficiency, pledging collateral across a diverse set of obligations, and ensuring that costs are correctly allocated to the businesses based on funding that encourages accretive business. 

A Pivotal Shift

Technology is increasingly transitioning knowledge previously held within various departments of a firm into algorithmic intelligence. This stage of technological evolution is pivotal and provides firms with a scalable solution that not only supports a dynamic, high-volume collateral ecosystem, but can also directly impact business profitability. For example, Transcend’s collateral optimization solution overlays sophisticated algorithms and rulesets on top of real-time inventory and obligation data, empowering firms to not only identify the most economically efficient collateral to pledge, but also automate multiple collateral instructions and moves across systems and jurisdictions.. Now, securities finance and operations personnel are shifting their focus from important but manual collateral and trading decisions to transformational strategies for the desk and overall business.

Looking Ahead

As the market continues to rapidly change, technology and data will continually evolve to keep up. What firms now realize is that the static technology built decades ago was not designed to adapt to new requirements and cannot easily pivot to solve modern challenges. For example, in the last five years alone, the types of financial assets have exploded with digital assets gaining traction. The evolution to fully digital assets will be a long journey and the dual world of current securities and digital assets will coexist for a foreseeable future. Another key trend is the focus on ESG which will impact the collateral platforms significantly as the trading, financing and collateral requirements dictating various ESG criteria increase. These forces will mandate firms to think through their collateral and liquidity ecosystem in a strategic manner. It is very clear that as the rate of technological and market change accelerates, future-generation technology must be flexible and innovative to adapt to requirements.

We at Transcend are passionate about the future prospect of the industry and are working with our clients to shape this evolution. With more than 120 people constantly developing cutting-edge solutions, our technology is being refreshed faster and more cost-efficiently than any home-grown and legacy solutions.

The New Meaning of UMR: “Undertaking a Massive Rebuild”

Posted on by Electric Pulp

September 1, 2021 marked a significant milestone for market participants as UMR Phase 5 finally went live. With headlines now turning attention to Phase 6, there are still many operational challenges brought to light during Phase 5 that have yet to be resolved. Learning from these challenges will help firms better prepare for Phase 6 and beyond.

The implementation of UMR Phases 5 and 6 have increased the network of global participants required to post IM collateral. Many of the recent additions, including small broker-dealers and asset managers, are new to pledging securities as collateral and managing segregated custody accounts. As a result, there has been a learning curve for these firms as they try to develop the operational processes to meet requirements efficiently and effectively.

UMR has certainly increased operational complexity as firms look to integrate workflows with a now broadened set of global tri-party and third-party custodians, central utilities, fund administrators and outsourcers. While the market has been quick to develop and adopt solutions that calculate and reconcile margin requirements in order to streamline the workflow between this growing network of participants, significant operational challenges remain within firms internally due to manual processes and legacy technology and infrastructures.

Firstly, many firms struggle to validate whether collateral received or pledged is in-line with counterparty agreements. Because these agreements are often handled manually and, in a silo, it is difficult to efficiently cross reference collateral eligibility. As a result, it is painfully manual process for firms to validate collateral against agreements.

Furthermore, recent market volatility and the resulting increase in margin call frequency has caused firms to struggle to identify optimal collateral, let alone eligible collateral. With collateral obligations, inventory, reference data, and eligibility spread across disparate systems and functions, determining which collateral satisfies margin calls in the most economically efficient way is often far too complex for firms to operationalize.

Lastly, because it is already difficult to validate and optimize collateral, it is nearly impossible for firms to achieve straight-through-processing comply with UMR without sacrificing operational efficiency. Moving the right collateral to the correct place at the right time often requires a sophisticated data and connectivity framework. Collateral must first be tagged and monitored properly to ensure it is available for use. Firms must also have the appropriate systems in place to identify the eligible and optimal collateral. Finally, firms must be seamlessly connected to booking systems or their counterparties in order to automatically instruct the movement of collateral to its final destination.

It is becoming increasingly important for firms to select the right technology partners to support the margin and collateral ecosystem in the most efficient way. Without adequate technology systems and a holistic data infrastructure, the new meaning of UMR could be “Undertaking a Massive Rebuild” rather than “Uncleared Margin Rules.”

Transcend is proud to help clients seamlessly and successfully comply with UMR requirements. Our end-to-end capabilities and unique data framework provide firms with the tools to achieve straight-through-processing for margin workflows. Learn more about our Collateral Validation, Optimization, and Booking Service solutions.

Transcend Appoints Capital Markets Veteran Steve Vena as Business Specialist

Posted on by Electric Pulp

Transcend, a leading provider of analytics, optimization, and automation for collateral, liquidity, and funding, has appointed Steve Vena as Business Specialist. Vena brings over 30 years of experience as a senior leader and innovator in capital markets operations and finance. In this role, Vena will be responsible for expanding Transcend’s business and product strategy to solve complex operational challenges at financial institutions.

Most recently, Vena leveraged his strong operational background to lead global capital markets transformations at both HSBC and Jefferies. He has also led global teams at firms including Lehman Brothers, Deutsche Bank and Millennium Partners. Additionally, Vena has played major roles in industry initiatives, such as ISDA’s credit derivatives working group.

Steve Vena

“Transcend’s technology is unique in that it achieves true STP, from collateral optimization to booking automation, reducing manual effort in a very controlled and scalable way from the front- to back-office,” explained Vena. “I’m thrilled to be a part of Transcend’s journey. I look forward to contributing to further product development and helping more clients as they adopt our solutions.”

“We’re excited to bring Steve onboard as he works with Transcend to grow and scale our business with certainty,” said Bimal Kadikar, CEO of Transcend. “Steve’s vast global capital markets knowledge will help us meet our clients’ objectives for end-to-end efficiency and control, while supporting Transcend’s expansion both globally and into new markets.”

On top of the addition of Steve Vena, Transcend recently announced the hire of Rajen Patel. Patel, based in London, will lead European sales, strategy and efforts to build an international presence. He joins Transcend with over 20 years of capital markets experience.

ABOUT TRANSCEND

Transcend is a leading provider of optimization solutions for collateralized businesses. With a growing roster of world-class banks and other financial institutions as clients, the firm is quickly becoming the gold standard for the real-time, firm-wide management of inventory, funding and liquidity. With more than 115 employees globally, Transcend addresses an array of regulatory and capital challenges that are facing the industry with a user-friendly, SaaS-based or on-prem collateral and liquidity management platform. For more information, visit transcendstreet.com.

ESG: A New Wrinkle in Collateral Management

Posted on by Electric Pulp

Once viewed as niche, ESG investing now impacts every part of the financial services industry.  According to Morningstar, ESG funds captured $51.1 billion of net new money from investors in 2020, more than double the prior year. As interest rapidly grows, ESG investing is expanding to several new investment products such as European Leveraged Loans. Within collateralized businesses, many firms are increasingly incorporating ESG guidelines to determine what assets they will finance or accept as collateral. However, the relationship between collateral management and ESG adds a new layer of complexity in an already complex environment.

Several data providers now offer ESG scores that allow investors to assess whether an issuer’s activities align with their values. However, the challenges of these offerings are well documented: multiple definitions of ESG, a lack of standardization on company disclosures and data sets, and various scoring mechanisms that may not best support investor goals.

The complexities of ESG criteria can lead to disparate treatment of securities across the market. Furthermore, ESG requirements can change the liquidity profile of certain assets as more financing and trading counterparties limit what they will accept as collateral. ESG adds a new wrinkle to an already intricate ecosystem of markets that require collateral, under varying margin regimes, with differing counterparty agreements and collateral requirements.

Looking to the Future

The future of ESG and collateral management continues to evolve with many market participants waiting for definitive guidance and best practices:

  • Which ESG scoring providers will become standard?
  • What causes or metrics will be the most relevant for a particular investing community?
  • Which agreements will incorporate ESG?
  • How can cash investors ensure that their ESG criteria is fulfilled by agent lenders and other collateral providers?

In this nascent market, the future is difficult to predict. Therefore, it is important to leverage flexible technology solutions that can evolve with changing requirements and best practices.

As the relationship between ESG and collateral management unfolds, Transcend is committed to addressing critical collateral challenges, including ESG dimensions, through a flexible architecture. Our innovative and configurable solutions provide the scalability and speed needed to stay on top of a changing ESG and collateral landscape.

Learn more about our ESG Solutions for collateral analytics, validation, optimization.

Collateral Management Technology Vendor Survey 2021 From Finadium Features Transcend

Posted on by Electric Pulp

Finadium featured Transcend in a new survey on Collateral Management Technology Vendors in 2021. The survey presents an inside look at the technology vendors who are leading the future of collateral technology – and the incredible feats clients can accomplish with them.

Finadium profiles Transcend as a solution to manage collateral, funding, and liquidity within distinct business lines and across the enterprise. By connecting data and processes across disparate systems, Transcend’s holistic solutions help clients run sophisticated analytics, optimization and automation.

“Transcend was purpose-built to provide the most advanced post-trade collateral optimization capabilities in the industry.”

– 2021 Finadium Collateral Management Technology Vendor Survey

Finadium subscribers can download the survey to learn more about Transcend’s role in driving more effective collateral management and collateral optimization, as well as some new functionality recently added to the Transcend platform.

Learn More About Transcend

Transcend empowers financial institutions to maximize enterprise-wide financial performance and
operational efficiency. Through real-time global inventory and collateral management and optimization
solutions, Transcend helps clients manage intraday liquidity, funding and regulatory requirements.
With seamless workflows that connect front office decision-making with back office operations,
Transcend’s innovative technology promotes smarter investment decisions and improved financial
performance.

Contact the Transcend team for more information on our fully integrated suite of solutions.

Collateral Benchmarking Checklist: How Does Your Firm Compare?

Posted on by Electric Pulp

When it comes to collateral and inventory optimization, how do you know how your firm stacks up to industry best practices? How can you benchmark your progress, and importantly, pinpoint opportunities to solve inefficiencies? 

Download Transcend’s Collateral Benchmarking Checklist and get a quick one-page snapshot to compare your firm’s funding, liquidity, optimization and risk capabilities to industry leaders. 

Download Now

The Transcend team would be happy to walk you through your assessment and discuss how to prioritize your optimization strategy to drive better results for your business – and in the shortest possible timeframe.

CCP Margin Management: Bimal Kadikar Speaks with Peter Lee from Euromoney

Posted on by Electric Pulp

Transcend’s CEO, Bimal Kadikar, recently connected with Peter Lee, Editorial Director of Euromoney. The two discussed some of the critical challenges banks face related to increasing margin demands, especially for CCP margin management. Click here to read Peter Lee’s full article summarizing the discussion on Euromoney.

With market volatility, not only does margin increase, but so does the frequency of margin calls. As a result, banks struggle to manage the increased activity in a scalable and efficient way. Furthermore, CCPs are becoming key players with regulators continuing to encourage OTC derivatives; as a result, firms must balance complying with unique and complex CCP eligibility requirements with posting optimal collateral.

“What is clear is that as volatility rises, not only does required margin climb but so too does the frequency of margin increases.”

– BIMAL KADIKAR

As the operational complexity of funding margin requirements grows, technology can help.

Bimal created Transcend in 2013 to help firms increase transparency across businesses with aggregated view of collateral and margin requirements. Earlier this year, Transcend launched CCP Central to help firms aggregate CCP data and automatically pledge optimal collateral. By automating CCP margining, Transcend makes it simple to optimally and efficiently fund cleared derivatives CCPs.

The benefits of leveraging technology to streamline CCP margin management not only helps banks efficiently and scalably meet margin requirements at CCPs, but also creates an opportunity for firms to fold OTC derivatives into a broader optimization strategy.

Click here to learn more about CCP Central.

CCP Optimization and Automation: Q&A with Bimal Kadikar, Transcend CEO

Posted on by Electric Pulp

Last month, Transcend announced the launch of CCP Central, the first enterprise-wide CCP optimization and connectivity solution. We interviewed Transcend’s founder and CEO, Bimal Kadikar, to gain his insights on CCP Central.

For those who may be unfamiliar with Transcend CCP Central, can you please explain what the solution does?

CCP Central is all about connecting an ecosystem of disparate CCPs. Every CCP operates in its own way, with unique rules, requirements, and nuances. This lack of standardization across CCPs has made it difficult for firms to efficiently manage and scale their CCP-facing collateralization processes. As the market leader in collateral optimization, it was important for Transcend to incorporate CCPs in our technology framework in order to offer a truly holistic solution.

CCP Central provides our clients with real-time visibility across CCP relationships and thoughtfully operationalizes margin processes.

Can you walk through a use case of how a firm could benefit from CCP Central?

A great example is OCC. OCC is a challenge because, unlike other CCPs who publish haircuts by securities that apply to all members, they accept securities under their “Collateral as Margin” procedure. This means that they charge each member a variable-bespoke haircut per security based on its interplay with the members trading positions: the “Portfolio Specific Haircut” or PSH of each security.

Let’s say adding GE shares as collateral reduces the overall portfolio exposure, whereas adding IBM shares as collateral would increase exposure within a firm’s trading portfolio then the OCC would give the firm more collateral value for GE shares versus if the firm posted the IBM ones. At another member, the situation could be reversed, and IBM shares would be more optimal than GE shares to pledge as collateral on the same day.

It becomes critical for firms to figure out which security to post based on the dynamic PSH method. Now, think about this complexity multiplied across all CCPs; it becomes a daunting challenge for most firms without an automated and smart solution.

Because Transcend connects CCP datasets and analyzes all reference data and constraints, our technology can seamlessly identify what is the best security to post in order to get the best value across all obligations.

What trends were you seeing in the industry that led to the development of CCP Central?

Traditionally, CCPs have been one of the most critical players in the derivatives markets, and they continue to rapidly grow in importance. Nevertheless, our clients continue to struggle with how to conduct holistic CCP optimization.

Typically, because most firms manage complex CCP requirements manually, they have to keep to simple funding routines focused on meeting critical requirements in a timely fashion. However, in doing so, they incur an opportunity cost by missing out on smarter combinations of assets that are achievable with better tools.

At Transcend, we are flipping that concept around. Our technology first identifies the most economically efficient collateral allocations and then carries out the operational processes required to instruct the movements.

How does CCP fit into Transcend’s solution suite of collateral, funding and liquidity products?

The Transcend solution suite is a cohesive, fully integrated yet modular platform. We have built each of our products thoughtfully and organically, integrating each module into a systematic architecture that can either solve very specific challenges or work together as an end-to-end enterprise solution.

CCP Central is an extension of our existing offering and allows clients to choose to either streamline CCP funding optimization on its own, or to fold cleared derivatives CCP funding into a broader firmwide collateral strategy.

What makes CCP Central different from other solutions, whether built internally or developed by third parties?

As far as I know, no clearing member or software provider has been able to build the holistic solution that Transcend offers especially within the context of enterprise level optimization. While many have spent years tactically developing parts of a digitized data framework, they have not been able to connect everything end-to-end. 

The truth is that it is difficult and costly to build and maintain such wide connectivity. Transcend allows firms to minimize development, hosting and maintenance costs while reaping the benefits of a thoughtfully built solution that has evolved over the last seven years.

We’ve already overcome the challenges of comprehensive optimization by developing and implementing Transcend at top-tier banks, broker-dealers and custodians. Why recreate the wheel or only solve part of the puzzle when Transcend can solve your firm’s greatest technological challenges in a very short timeframe?

Learn more about Transcend’s CCP Central solution, or request a demo.

ISDA Annual General Meeting 2021: Key Collateral Themes

Posted on by Electric Pulp

As a proud sponsor of the 2021 ISDA Annual General Meeting, Transcend attended several sessions at this year’s event. Session topics varied from current challenges such as the Libor Transition to future themes including ESG and collateral transformation.

Throughout the sessions we heard three reoccurring themes that particularly impact collateral practitioners: market volatility, UMR, and digitization and technology. In this article, we highlight these themes along with key takeaways.

Market Volatility

Coming out of the COVID-19 pandemic, many are still discussing the market volatility in March 2020 and its impact on operational resources. CCPs were commended for their successful response to the pandemic despite the increase in volume and size of margin calls. However, there was also a need for CCP’s to re-examine their IM models to better reflect underlying risk and establish greater trust through model transparency.

Looking forward, firms should brace themselves for a world of increased market volatility due to the unpredictable effects of climate change. Firms will need to have the tools to support the impact of this volatility such as spikes in volumes, the need for intraday margin calls and the ability to seamlessly manage a crisis.

Uncleared Margin Rules

It came as no surprise that UMR was a common theme at this year’s ISDA Annual General Meeting. Many have evaluated solutions to keep up with the increase in margin calls as well as to simplify the added complexity of phases five and six such as new types of counterparties, new types of collateral, and new arrangements with custodians, e.g. safekeeping and segregation.  Clients also need to solve for the cross-border challenges of collateral agreements.  Firms must resolve these issues as early in the UMR preparation process as possible to ensure compliance.

Digitization and Technology

Several sessions discussed the application of technology to digitize historically manually processes. Digitization enables greater transparency and interoperability, which is important as firms consider ways that they can more effectively scale collateral processes and respond to real-time requirements. For example, with the growth in collateral requirements as a result of market volatility and UMR, visibility into agreements and schedules, inventory and collateral management across the enterprise is critical to make informed decisions quickly.

As ISDA members look beyond UMR to future requirements and challenges, whether that is continued acceleration in collateral activity or the impact of ESG, Transcend is happy to help firms assess, analyze and optimize their inventory, funding and liquidity requirements. Learn more.

Transcend Launches First Enterprise-Wide CCP Connectivity and Optimization Solution

Posted on by Electric Pulp

NEW YORK, May 19, 2021 – Transcend, a leading provider of inventory, funding and liquidity management and optimization solutions, expands its best-in-class solution suite with the launch of CCP Central. CCP Central is the first platform to deliver CCP connectivity and automated margin and collateral management across a global network of Central Clearing Counterparties. 

With Initial Margin posted at CCPs reaching record highs in 2020 and cleared OTC derivatives margins alone up by 22.8% year over year1, it is no longer feasible, let alone scalable, for firms to manually process CCP margin requirements. CCP Central addresses the risks and inefficiencies of manually funding growing CCP exposures. 

“CCP margin and collateral management is key to a capital markets workflow, but the lack of transparency and disconnected, manual processes that firms have relied on up until this point have created a high degree of risk that is only growing as CCP margin pressures increase,” said Bimal Kadikar, CEO of Transcend. “Our CCP Central solution delivers a control framework that seamlessly addresses one of the industry’s largest pain points while also creating process efficiency and improved financial performance.”

Transcend’s CCP Central solution specifically targets the many challenges associated with manual and siloed CCP margin activity. The platform provides pre-built connections to CCPs, eliminating a reliance on internal development resources to set up multiple complex integrations. By offering advanced optimization capabilities and straight-through collateral processing, Transcend provides an end-to-end solution to connect, standardize, optimize and automate CCP funding.  

Transcend’s innovative CCP Central solution seamlessly addresses some of the industry’s greatest margining challenges by providing:

  • Out-of-the-box CCP connectivity and harmonized data across CCPs, exchanges, and internal platforms for client and house collateral
  • Comprehensive analysis of margin calls and balances, collateral schedules, positions and transactions, and RQVs to satisfy margin requirements
  • Sophisticated collateral optimization not only across CCPs, but also across the enterprise to identify the smartest collateral movements
  • Straight-through-processing (STP) to automatically execute funding decisions without the need for manual oversight 
  • Monitoring and alerting frameworks to tightly control risk exposures 

“Transcend’s clients have been asking for a single place to monitor, manage and automate funding activities across their global network of CCPs,” explained BJ Marcoullier, Head of Business Development at Transcend. “Transcend is proud to deliver a solution that not only addresses these needs, but also integrates with our clients’ broader enterprise framework for true scalability.” 

As cleared derivatives CCPs become a growing proportion of collateralized exposures, Transcend’s CCP Central solution presents an opportunity for firms to implement best-in-class capabilities and integrate cleared derivatives into their enterprise-wide collateral management strategy.

1 ISDA Annual Margin Survey

ABOUT TRANSCEND

Transcend is a leading provider of optimization solutions for collateralized businesses. With a growing roster of world-class banks and other financial institutions as clients, the firm is quickly becoming the gold standard for the real-time, firm-wide management of inventory, funding and liquidity. With more than 100 employees globally, Transcend addresses an array of regulatory and capital challenges that are facing the industry with a user-friendly, SaaS-based or on-prem collateral and liquidity management platform. For more information, visit transcendstreet.com.

The Future of Collateral Management

Posted on by Electric Pulp

Demands on collateral are increasing due to regulations such as UMR and the ever-changing market landscape. As a result, firms are now evaluating how to enhance their technology. Doing so allows them to not only better manage inventory, but also drive improved performance and control. Transcend’s BJ Marcoullier recently discussed the future of collateral management during the Collateral of Tomorrow panel at the Securities Finance Times Technology Symposium. In this article, we highlight three of the key takeaways from the session.

There are three main drivers contributing to the recent increase in collateral utilization

ISDA’s Annual Margin Survey revealed an approximate 5% increase in HQLA utilization between 2019 and 2020. There are several factors that have contributed to this increase:

Firstly, there is a mandated push to reduce counterparty risk and overall risk in the market. Uncleared margin rules are driving firms to initial margining and segregated collateral. Secondly, after the market volatility of March 2020, firms recognize the importance of prudential risk. As a result, many are adding HQLA and capital buffers to better cover exposures during periods of market uncertainty. Lastly, because firms must manage liquidity risk such as LCR and NSFR, there are leverage constraints in the market that impact trading and client financing in the secondary market. Accordingly, firms must manage these binding constraints through collateral.

Enterprise-wide collateral connectivity will become essential in the near future

When surveyed about where they thought though the collateral ecosystem would be in five years, 75% of event attendees thought the future of collateral management would include the delivery of enterprise-wide cross-product collateral efficiency. Collateral data often lives in siloes across business departments, regions, and internal/external systems. Without a centralized and integrated obligation, supply and eligibility data framework, firms cannot fully analyze what collateral to allocate across all trades, shells, and margin calls across the enterprise. Once this data is connected, firms will not merely meet their requirements, they can make more strategic business decisions.

Technology is critical to keeping up with increasing collateral velocity

During the market volatility in March 2020, there was a heightened emphasis on the inadequacy of existing collateral technology capabilities. Firms struggled to manage the volume of margin calls and disputes, as well as accurately forecast collateral obligations. As a result, firms are now examining their existing capabilities to fill in the recently underlined operational and performance gaps. Because it is unrealistic to completely replace an existing technology stack, firms require a solution that sits on top of their current infrastructure to connect and standardize data. As agile development strategies continue to increase, technology offers a scalable and “future-proof” solution to stay ahead of changing business, regulatory, and industry requirements.

Transcend is bringing future-generation collateral solutions into the present

Transcend’s suite of technology solutions offers the collateral connectivity, harmonization, analytics, optimization and automation capabilities required to not only satisfy increasing collateral demands, but also gain a competitive edge. Learn more.