The last 18 months have been a period of tremendous growth and innovation for Transcend. We’ve doubled our client base, launched a sophisticated new optimization framework and made 31 new hires. Transcend also plans to open an EU office in 2021 to meet the increasing demand we’re receiving.
Our CEO Bimal Kadikar spoke with Oliver Wade at Global Investor Group about the Company’s recent success: https://bit.ly/3nGRiql
The business of collateral optimization has changed radically. In 2020, banks can no longer accept linear priority lists for collateral delivery because when viewed globally across balance sheets and product lines, this no longer makes sense. What was a cutting-edge solution even five years ago is now leaving money on the table. Automation is a central part of this change.
Automation of collateral optimization has shifted how solutions get implemented. While both vendors and institutions would always prefer one solution that provides turnkey results, it now requires far more than simply the ordering of collateral lists to deliver the outsized value seen in the past.
Optimization is an ongoing process that requires both sophisticated software and engaged stakeholders. In this article we discuss recent client lessons, including five key observations from clients on how institutions need to consider collateral optimization, and how our clients are approaching the next complex layer of global inventory optimization.
Collateral optimization requires a complex mix of people and technology. While automation is usually a desired end-state, there are an extensive number of processes, regulatory and client constraints that need to be incorporated first. In the past few months, Transcend has learned some important lessons working with clients:
These examples are the next iteration of collateral optimization, which recognizes the importance of both automation and also the realistic limitations of a human-centered process.
Aggregating inventory globally to a central data hub ensures that collateral optimization considers all available assets at any given times. It sounds easy but in practice contains substantial complexity, in particular the requirement that systems communicate with each other and that descriptive information about each asset is collected and accurate.
To date, collateral optimization has been a tactical and localized process. Individual business units have successfully delivered optimization for their region or silo but that has left the firm as a whole in the dark about where enterprise scalable opportunities may lie. Few firms have a holistic optimization strategy in place and fewer still have implemented one globally, but most recognize that tactical solutions have reached their limits. The next evolution of collateral optimization needs to occur to deliver on its promise of reduced costs and greater operational efficiency.
In an earlier article, Connected Data: The Opportunity for Collateral and Liquidity Optimization, I discussed the importance of connected data, or metadata, to global inventory management. This information covers: the tenor of a position; who the owner is; whether the position is owned by the firm or a client; rehypothecation status; and where it can be pledged at the lowest haircut. This enrichment process is still not conducted by most firms, resulting in real opportunity costs as assets aren’t fully optimized against the firm’s liabilities.
A global inventory optimization effort looks to solve for this problem by developing and assigning connected data to each asset. The process can be complex, but the end results deliver a level of collateral optimization that is robust and scalable. This is a cornerstone of broadening out the impact that optimization can have for financial services firms, starting from data and delivering through to actionable results.
Effective global inventory optimization is an input to solving an array of other problems, including:
Solving the problems of global inventory management and process automation while building tools for human/technology/process engagement is Transcend’s core business. The client examples discussed here show that collateral optimization works best with tools that are well thought-out in advance. We continue to work with our clients to explore where the boundaries lie in optimizing not just collateral but also the process.
Automation of collateral optimization can clearly be a competitive advantage. With hundreds of millions in revenue on the line, advanced firms are now looking to integrate pre- and post-trade across silos. Deciding whether to use collateral for a repo vs. deliver for an OTC derivatives transaction has been discussed since optimization has been around, and firms are now in a position to actualize this intelligence. Collateral optimization is not easy, but the promise of delivering meaningful results to the front office could unlock a new generation of technology development in the collateral space.
This article was originally published on Securities Finance Monitor.
When we launched Transcend a few years ago, we knew that we would be bringing something unique and innovative to the market. Indeed, we have developed a cutting-edge solution to enable firms to optimize their inventory, liquidity and funding – whether that be for just one of their collateralized businesses or their entire enterprise. Our solutions have helped firms increase efficiency, improve regulatory reporting and reduce costs – all while delivering better services to their own clients.
But this is just the beginning. Our philosophy is focused on delivering constant innovation. Markets move fast; our clients’ needs quickly evolve; their customers’ demands increase. So at Transcend, we strive to always stay ahead of these cycles and anticipate future needs of our clients and the next industry pressures. Working closely with our customers, combined with the deep experience of our team, has helped us to achieve a strong foundation and a high level of momentum and growth.
So, what does this have to do with our new logo? Just like our business and technology are always moving forward, so should our brand. We updated our logo, not by starting over, but keeping the core essence of what our logo depicts: flexible technology solutions that help you move forward and upward. Then we refreshed the font and colors to ensure that our logo represents a modern, progressive and vibrant company that is truly delivering next-generation technology solutions that are helping to solve our clients’ challenges – both small and large.
We are excited for what the future holds and what we will continue to deliver to the industry. We hope that you will join us on this journey so that we can help you take advantage of the best technology solution to meet your needs for optimization and achieve your business goals. There are some exciting news and milestones to share with you in the coming weeks, so please connect with us.
See more of our new branding on our updated website. As always, please feel free to get in touch with us. We welcome your comments, questions and the chance to have a conversation.
On July 9, 2020, Bimal Kadikar, CEO of Transcend, spoke on the ISF-ISLA panel discussion on “COVID-19 & Chain Reactions: The Transmission of Effects Across Markets & Institutions.” The group discussed what has been expected and unexpected during the health crisis. And based on lessons learned what changes can be expected from business, operations and technology perspectives? Read more in the Global Investor article, “Covid could lead to fungible margin model – panel” for a recap on the discussion.
“Firms struggled to get a clear picture of their #collateral and margin exposures during the most volatile months of the crisis…We expect this to bring more focus to centrally coordinated collateralised businesses and operations.”
– Bimal Kadikar, CEO, Transcend
Panel participants were:
Transcend CEO Bimal Kadikar spoke to Global Investor about the current status and approaching deadline for QFC Recordkeeping compliance. Despite industry requests for a QFC delay, “…most market participants do not believe it will be approved, because the whole reason behind QFC Recordkeeping is that during times of turmoil and high volatility, if an institution is in trouble, they have a full picture of the financial contracts….The pandemic definitely had some impact on the preparation part. But, for the most part, I think most of the financial firms from a project planning perspective are not facing any major delays…”
Read the full Global Investor article for additional information.
The Transcend QFC Recordkeeping solution automatically maps agreements, generates reports and performs validations to streamline compliance. Additional features include:
Contact us today for a demo or click here to learn more.
In collateral management, no news is very good news. The collateral management industry deserves congratulations for making almost no noise over the last few months. Nothing grabs headlines like a disaster, but the mainstream press has been remarkably quiet about collateral management functioning. In a new Finadium report, vendors, custodians, outsourcing managers and central securities depositories discussed collateral management and covid-19.
“The crisis is reinforcing our value proposition: clients are asking for more STP; more connected data; more scalable infrastructure; and reduced reliance on legacy systems.”
– BJ Marcoullier, Head of Sales, Transcend
Learn more about how Transcend’s solutions simplify the operational challenges of collateral management and covid-19.
The next level of operational efficiency will incorporate a deep view of connected data within organizations that will yield better efficiencies and optimization of capital through firm-wide decision making. Taking automated action on those decisions for Straight-through Processing will enable firms to achieve the desired efficiencies in a scalable manner. Getting there has its challenges, however. In this article we look at why many in the industry are embarking on this more sophisticated approach to operational efficiency, and identify three key strategies for ensuring success. A guest post from Transcend, originally published in Securities Finance Monitor.
Continue reading “The Next Level in Building Data-Driven Operational Efficiency”A US regime that a large number of global market participants are starting to fully assess could leave firms crunched for time to implement a comprehensive end-to-end solution, according to BJ Marcoullier, Transcend’s head of sales.
Qualified Financial Contracts (QFC) recordkeeping, a US regulatory regime that will be in its final and largest phase as of June 2021, is designed to reduce market instability in the case of failure of a major financial institution, as detailed under the Dodd-Frank Act, and is one of the regimes designed to prevent another financial crisis.
Access Global Investor Group’s full report: US regulation could leave firms “scrambling”.
NEW YORK, NY (February 10, 2020) – Transcend, a leading provider of real-time collateral and liquidity optimization technology, has hired Lis Hadingham to join Transcend’s sales team, led by BJ Marcoullier. Hadingham brings more than 20 years of experience in the securities finance industry, with extensive background in collateral management and financial technology sales. Her start coincides with an accelerating pipeline of opportunities for Transcend, whose solutions are currently implemented at major banks, including GSIBs.
Before joining Transcend, Hadingham was Managing Director and non-executive board member at CloudMargin where she launched and led the firm’s sales and business development initiatives in the Americas. Prior to CloudMargin, Hadingham held senior roles at FIS (formerly Sungard) selling collateral management and securities finance software solutions, and at Citibank’s Capital Markets group focusing on equity finance sales for repo and securities lending. Prior to Citibank, Lis spent 14 years at J.P. Morgan Chase, initially in London and then New York, successfully helping expand the bank’s collateral solutions.
“We are excited to welcome Lis to our growing team of experts at Transcend,” said Marcoullier. “Her extensive experience leading sales in the collateral management and securities space will play a pivotal role as Transcend supports a growing roster of clients and unique products.”
“Innovation in the collateral management space is crucial to meeting growing regulatory requirements,” said Hadingham. “I’m thrilled to join the Transcend team of experts in helping evolve the industry’s capabilities in global inventory optimization, regulatory reporting and operational efficiency.”
###
About Transcend
Transcend is a leading provider of real-time global inventory and collateral management optimization technology, enabling clients to manage intraday liquidity and regulatory requirements across capital markets. With a modular, front-to-back office approach, clients harness real-time data, collateral and liquidity across their enterprises to unlock greater efficiencies and improve returns on investments. For more information, visit www.transcendstreet.com.
Media Contact
Zain Abouseido
Paragon Public Relations
zain@paragonpr.com
+1.646.558.6226
Kayur Parekh to lead expansion of Transcend’s technology for the buy-side
NEW YORK, NY (January 24, 2020) – Transcend, a leading provider of real-time collateral and liquidity optimization technology, has hired Kayur Parekh to join Transcend’s technology leadership team. He will focus on accelerating Transcend solutions and capabilities on the cloud and refining the solutions for the buy-side. Parekh brings more than 18 years of technology and financial markets experience.
Before joining Transcend, Parekh was Chief Technology Officer at ENSO Financial, a leading SaaS-based solution company providing insights and analytics to the buy-side and prime brokers. At ENSO, Parekh spearheaded the technology transformation of the next generation of ENSO solutions focused on cloud and microservices based architecture. Prior to ENSO, Kayur held a number of impactful roles including Senior Technology Director at NEX (now part of CME Group), Senior Solutions Architect of the initial technology platform at Transcend, and Senior Vice President at Citi, where he implemented and managed trade capture and STP systems.
“Transcend is experiencing explosive growth for our analytics, optimization and regulatory solutions,” said Bimal Kadikar, CEO and Founder of Transcend. “I have known Kayur for years and his expertise in developing advanced, scalable systems on the cloud and for the buy-side will accelerate our strong technology capabilities and momentum.”
“I look forward to joining Transcend and leveraging my extensive experience in delivering state-of-the-art technology for cross-asset collateral, funding and liquidity management,” said Parekh. “I am excited to work with the talented Transcend team to help solve our clients’ complex challenges.”
RMA Global Markets and Securities Lending Director Fran Garritt recently interviewed Bimal Kadikar, founder and CEO of the collateral-focused technology firm Transcend, on current issues in collateral management, including the growing demand for high-quality collateral and the recent implementation of the Qualified Financial Contracts (QFC) reporting rules. Their Q&A follows.
This interview originally appeared in the February 2020 issue of The RMA Journal, copyright 2020 by The Risk Management Association. Read or download the PDF, here.
GARRITT: To start off, can you explain how collateral is used in securities finance?
KADIKAR: In the broadest sense, when firms execute bilateral or multiparty transactions, collateral is what backs the risk of a trade. It acts in the way a house or a car would in a mortgage or auto loan. Securities or cash are made available to secure financial transactions such as the financing of repurchase (repo) contracts. Collateral is needed to protect against any deterioration in market value or the credit quality of a counterparty. In the case of derivatives transactions, collateral is about de-risking. In the context of repo or pure funding it’s about being able to raise cash in a secure market. Collateral is sometimes too broadly defined or ill-defined because it means different things based on who you talk to.
GARRITT: What are the key structural issues firms face now regarding collateral management?
KADIKAR: Since the credit crisis, regulators have been focused on de-risking and reducing systemic risk. A key factor is safeguarding bilateral trades. Regulators have taken one of two approaches in that area. One, they are trying to force transactions through clearing channels like central clearing on exchange-traded instruments. If a trade has to be bilateral, there is emphasis on posting the proper quantity and quality of collateral to ensure that even if there is a big negative impact on one counterparty, the financial system is stable. As a result, collateral demand is generally increasing. Meanwhile, regulators have also made changes to improve the liquidity of the big players, who now must hold more high-quality collateral on their books. The demand for high-quality collateral has increased, and the supply is lower. Firms need to figure out how to navigate this.
GARRITT: How would you define collateral optimization?
KADIKAR: Optimization means creating a process which can drive increased efficiency and financial performance. For example, if you are a margin specialist and you have a decision to make about which collateral to deliver against a specific triparty trade or margin call, optimization could mean making sure you are allocating the cheapest-to-deliver securities. Or you could be sitting on a securities lending desk and thinking about how to allocate borrows or loans to minimize the capital that has to be held against the counterparty’s books. Or you could be on a derivatives or futures desk, deciding which exchange to send cleared trades to so that margin requirements are reduced. Optimization will mean different things to different people. It boils down to having a framework that can incorporate the various factors and costs that drive that performance requirement. The various costs could be liquidity coverage ratio (LCR), jurisdictional, credit, etc. Being able to incorporate those costs harmoniously is what optimization is. It clearly is not a “one size fits all.”
Firms need to address this in a holistic manner. Often, the various business lines—securities lending, repo, derivatives—have their own platforms and systems. Creating a holistic view or capability to optimize across businesses is a challenge. Firms are in different stages of figuring out how to go about it. One challenge is there are too many businesses or silos that are either producers, consumers, or both of collateral.
GARRITT: Besides standard clearing and increased collateral requirements, what are some of the more challenging regulations firms are addressing?
KADIKAR: The Securities Financing Transaction Regulation (SFTR), the Markets in Financial Instruments Directive (MiFID II), and, more importantly, the Qualified Financial Contracts (QFC) rules require firms to be able to apply their trades to collateral, agreements, and guarantees and then report to regulators on transaction date-plus-one basis. These are fairly complicated requirements. Firms need a comprehensive ability that cuts across business silos and different functions to be able to produce that information. Regulators are moving past writing and designing rules and getting more into the enforcement and analysis phase. They are determining how well firms are complying with the rules that have been created over the past 10 years, a majority of which are under the umbrella of the resolution planning set of rules and regard the capability firms must have.
GARRITT: What impact do the net stable funding ratio (NSFR), the aforementioned liquidity coverage ratio (LCR), and high-quality liquid assets (HQLA) rules have on collateral management?
KADIKAR: All these regulations are driving liquidity standards and the capability of firms in this space. Firms not only need high-quality assets on the books, they also need the ability to consider the liquidity buffer. Firms need a specific understanding of the sources and uses of collateral, because how it is raised and used determines whether it pertains to the numerator or denominator of the LCR or NSFR. If you don’t have the ability to connect the right dots in how you put together your sources-and-uses model, you will be penalized in how your LCR is calculated. As a result, your profitability will be impacted.
There has been a bespoke approach to how firms have chosen to operationalize the implementation of the rules. There are cases where, say, a firm’s treasury department may have been tasked with calculating LCR. In most cases that framework has not been at an enterprise level. Often there are businesses in a firm that are blind to or vaguely aware of how their activity is impacting the subsequent calculations that result once you look at operations from an LCR or HQLA basis. There has been a rough adoption of these rules in firms, which is causing friction. The impact of these rules often gets overlooked when you think about them from a measuring and operationalizing perspective.
GARRITT: What is the impact of recovery and resolution planning regulation (RRP) on the collateral business?
KADIKAR: Regulators are mandating that firms need a certain level of capability and knowledge regarding collateral. During the financial crisis, counterparty collateral at Lehman was a big issue. Regulations require every firm to know not only what collateral they have but the counterparty collateral they are holding and its jurisdiction. They must have the capability to know that information on a T-plus-one, early in the morning basis—and on an enterprise level. There are other requirements regarding payments and visibility into intraday liquidity. Firms need to know all the payment and clearing requirements, and how they would operate in normal and stress scenarios.
GARRITT: You mentioned QFC Recordkeeping. Tell me a little more about that.
KADIKAR: The main requirement is firms need to track in a detailed manner all contracts that are defined as qualified financial contracts. This includes tracking all derivatives, repos, margin lending, and prime activities, including trades that are in nonstandard settlement cycles. It also includes all the collateral that has been posted or received against those transactions, all the guarantees that may be in place by any party or counterparty, and the ability to create netting sets and then provide output defined by the regulators in eight sets of tables. It’s not just transaction data. It’s transaction data aligned with referential data from a counterparty and principal perspective, including who is the right contact for these things. Firms need to do this on a T-plus-one, 7 a.m. Eastern time basis.
The first step is figuring out where the relevant QFC positions are. The second challenge is reporting on agreements. More than 20 terms of an agreement are reportable under QFC recordkeeping rules. This is daunting, especially for many firms that have challenges in accessing terms of agreements in a digital form. While many firms have this information digitally, not all do. And even for firms that have agreements in digital form, systems that book trades often do not refer to agreement IDs, which would tie positions to agreements in a seamless manner. Further, QFC recordkeeping is not just a matter of reporting on the counterparty and principal. There are many other aspects, especially in complicated scenarios like when there are multiple legal entities on the counterparty side. And that has to be provided not only for the position but for the collateral. You need to overlay the reference data and make sure it is available in a linked manner. Getting clean data for reference purposes is also a big challenge—even simple data points like the right contact person or city. Regulators have specific requirements regarding the format they want information in. If you do not have it that way, you may be faced with a big cleanup or mapping exercise.
Once you figure out the reporting, you must ensure you can reproduce it on a on a day-to-day basis. You need a dashboard to see how you are doing regarding compliance and to identify problems—and who needs to fix them—on an ongoing basis.
The idea behind the recordkeeping is if the Federal Reserve or Federal Deposit Insurance Corporation has to liquidate a failing institution they need a good set of information to make decisions on contracts. QFC recordkeeping provides a consolidated set of information to make quick and quality decisions in a stress event.
GARRITT: Which firms have to comply?
KADIKAR: Six firms were set to be in scope by the end of 2019. Up to roughly 30 overall will likely need to comply by 2021. The scope is determined by size and complexity. Due to the quickly approaching compliance dates, there has recently been a significant increase in focus on QFC-related requirements by the remaining in-scope firms. This was particularly evident at the RMA-EY hosted roundtable that took place in November. Firms are addressing challenges including how to strategically digitize a diverse set of legal agreements, how to link QFC data across disparate data centers and attributes, how should exemption monitoring be handled, and asking questions like how to run a QFC Recordkeeping program in BAU mode.
GARRITT: What final advice would you have for firms as they work to comply with QFC and other recordkeeping regulations?
KADIKAR: Implement systems in a way that it is sure to drive business value. This is a huge challenge for the industry. Institutions are investing billions of dollars into regulatory initiatives. They must ensure they can capture a business benefit from all of this data, and must think about this as they are designing solutions.
GARRITT: What sorts of benefits?
KADIKAR: There are significant advantages to having the right data in the right form regarding decisions for placing collateral and funding opportunities. Counterparty credit issues can also be addressed with a connected data set. And there are other stakeholders who have emerged who are looking to benefit from this information, whether it is liquidity risk reporting requirements or enterprise credit looking for better data regarding the overall ecosystem. If you do things properly and in a way that creates a connected data ecosystem to make decisions in real-time, or at minimum at an end-of-day or start-of-day basis, you can use the same infrastructure for other regulations as they come along.
Our CEO Bimal Kadikar joined our team in India to open a larger office in Hyderabad. We have expanded our team’s talent and capabilities significantly across all functions – analysis, development, QA & support. This bigger, brighter space creates a very collaborative environment and will support our ambitious growth plans.
