Author: Peter Napp

Interview: Transcend’s Bimal Kadikar on Global Traction and the Citi Investment

Posted on by Peter Napp

Bimal Kadikar, founder and CEO of Transcend recently spoke with Anna Reitman of Finadium regarding Citi’s investment in Transcend and how it will support future expansion of the firm.

Citi’s venture arm recently made an investment in a roll out of Transcend’s collateral management technology globally. We speak with CEO Bimal Kadikar about how that investment will support the players, places and products that are part of expansion plans in 2024 and why the economic and regulatory backdrops fit in with the timing.

Kadikar noted that the investment positions Transcend towards “solidifying our strategy” and boosting liquidity to “execute on the direction that we have set out.” Citi is the third bank to invest in Transcend, with the other two being undisclosed.

Citi also has “ambitious plans” to expand Transcend’s technology internally, aiming to harmonize and integrate activity across businesses to make collateral allocation decisions. According to the statement, “a long-term business agreement will enable Citi as a client to significantly enhance the efficiency of how it deploys cash and collateral across its global network.”

The investment is earmarked for expansion across client, product and geographical lines as collateral optimization for liquidity funding gains traction across numerous industry players, in part due to market expectations of a “higher-for-longer” interest rate environment.

In the backdrop is a regulatory environment in which authorities are “tightening the screws” on firms, with mandates on around integrity, analytics, with a keen eye on intraday liquidity. US regional banks, for example, are under increasing pressure to improve liquidity positioning. And as the “dust settles” on Basel III Endgames, collateral market participants are expecting significant implications for capital requirements.

Those drivers are translating past the traditional sell-side space – banks and broker-dealers – to asset managers and insurance firms, as well as regional banks, explained Kadikar.

“The solutions that we have developed for sell-side are very similar to the solutions that insurance companies as well as the asset managers are looking for, with some tweaks and some adjustments clearly, but we will be working through that and that is a big focus area for us in the quarters (and) years to come,” he said.

One of the ways the opportunities are measured is in terms of cost savings, which Kadikar reckons can be tens and even hundreds of millions of dollars if firms get optimization right. The priority for clients, he added, is to boost optimization capabilities because what is currently in place is not enough for too many firms.

“Being able to have very robust optimization capability that cuts across business areas for them, to save on their liquidity funding and collateral costs — that’s a huge priority for almost all front lines,” Kadikar explained. “Most firms have been working at it, but they are working in silos and there (are) some capabilities here, and some capabilities there, but almost all of them have realized that they have a lot more to do, and a lot more to gain.”

Products and Places

In terms of new geographies, expansion plans include focusing on Europe, Middle East and South Africa, and the team is in early days of Asia expansion with Transcend’s India presence expected to serve as an anchor.

A major initiative that has been a couple of years in the making is establishing a network of connectivity across the complex industry ecosystem of triparty agents, CCPs, depositories and nostro accounts. Transcend is currently connected to all the major triparty agents and 20 CCPs globally, with 20 more coming online in the next 12 to 18 months.

“We have a very ambitious plan to create network connectivity across all the major players that affect collateral, funding or liquidity in these businesses,” he said. Those businesses can be across the range of the collateral market landscape, and includes equities, repos, prime, cleared and uncleared derivatives margin as well as treasury and operations functions.

“This space is generally underserved, not because of the intent but because of the complexity,” Kadikar said. “We have been chipping at it over the years and now we have the sufficient technology and sufficient integration to provide that level of capability that the industry is looking for.”

It’s not any one technology that is coming to the forefront, but rather a collection that is increasingly being orchestrated and adopted. Machine learning trained on historical data is proving to be particularly well suited for the information complexity that needs to get synthesized, and early days development is moving forward in Transcend’s lab, he noted.

“We are very excited about the potential of this because we are now collecting so much information for our clients from such diverse industry sources that new technologies can help us synthesize in helping (clients) make better decisions,” he said.

This article originally appeared on Finadium.com February 14, 2024, used with permission.

Transcend Secures Investment from Citi to Accelerate Global Deployment of Enterprise-wide Inventory Optimization Solutions

Posted on by Peter Napp

New York, NY; November 15, 2023

Banking Giant Joins Growing Roster of Top-tier Banking Groups as a Transcend Client

NEW YORK, November 15, 2023 – Transcend, a leading provider of liquidity, funding, and collateral optimization solutions, welcomes Citi as their latest investor.

The investment was made through Citi’s Strategic Investments arm, which invests in innovative fintech companies globally that are strategically aligned to Citi’s institutional businesses.

Citi’s funding will support Transcend’s ongoing global roll-out of its solutions, including its groundbreaking optimization technology. Transcend, formed in 2013 by Bimal Kadikar, welcomes Citi as the third global bank to invest in the fintech firm along with other institutional investors.

Additionally, a long-term business agreement will enable Citi as a client to significantly enhance the efficiency of how it deploys cash and collateral across its global network.

The Transcend solution harmonizes and integrates activity across Bi-lateral, Cleared, and Triparty collateral requirements and allows allocation of the best collateral.

“The industry-wide solutions that Transcend is developing have the promise to dramatically shift the efficiency and profitability of the entire industry and we’re glad to play our part in facilitating these advances,” said Alain Verdickt, Head of collateral optimization at Citi.

In the last two years, Transcend has seen significant growth across the global banking community. The company has added additional board members, expanded their European branch, and added a number of industry & technology experts to its global team.

“Transcend is excited to welcome Citi as an investor and a client,” said Bimal Kadikar, Founder and CEO of Transcend. “Additionally, we are delighted that Citi’s funding will allow us to expand our solutions, which are already yielding tremendous savings for the industry.”The use of collateral has moved beyond operations and is now being seen as a strategic enterprise-wide business opportunity. The streamlining of collateral and funding is already helping financial institutions save tens to hundreds of millions of dollars annually. Transcend continues to be at the forefront of these industry innovations with its cross-triparty collateralization and other solutions for institutional market participants.

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About Transcend
Transcend is on a mission to help global market participants achieve next-level performance results through innovative solutions that enhance liquidity, funding, and collateral decisions. With a growing roster of world-class banks, broker-dealers, asset managers, and custodians as clients, the firm is quickly becoming the gold standard for inventory analytics, optimization, and automation within a business line or across the enterprise. Led by a team of 145+ domain experts, Transcend addresses an array of complex financial, operational, and regulatory concerns challenging the capital markets industry. For more information, visit transcendstreet.com and follow us on LinkedIn and Twitter.

About Citi
Citi is a preeminent banking partner for institutions with cross-border needs, a global leader in wealth management and a valued personal bank in its home market of the United States. Citi does business in nearly 160 countries and jurisdictions, providing corporations, governments, investors, institutions, and individuals with a broad range of financial products and services.

Additional information may be found at www.citigroup.com | Twitter: @Citi | LinkedIn: www.linkedin.com/company/citi | YouTube: www.youtube.com/citi | Facebook: www.facebook.com/citi

Media Contacts:

Transcend
Paragon PR
Simon Hylson-Smith
shs@paragonpr.com

Citi
Patricia Tuma
Patricia.Tuma@citi.com

Rekha Jogia-Soni
Rekha.JogiaSoni@citi.com

Transcend at 10: Extracting the Benefit

Posted on by Peter Napp

BJ Marcoullier, Global Head of Sales and Business Development at Transcend, reviews the platform’s evolution across the past decade and shares views on the future of the collateral market.

With Transcend celebrating its 10th anniversary in June, how has the firm evolved?

There are three key dimensions to our evolution. The first, and most important, is the people — we now have approximately 150 people globally, with offices in North America, UK and India, with a growing presence in Asia. In Europe, we recently added Emily Harris to further drive our local product development and focus on the securities finance space. It is highly important for us not only to have top-level talent, but also to have people that take pride in delivering a high-quality experience to our clients.

The second area of evolution is our clients. Five years ago, we were just extending our product to additional global banks. Now, we are onboarding clients globally across the sell-side — including banks and brokers — buy-side and custody space. As a result, we are now processing trillions of dollars of collateral each day. The last piece of our evolution has been on the product side. We moved from a modular product set to a highly scalable integrated solution offering, anchored around automating complex decision-making and collateral mobilization.

How are you aiding your clients in achieving their goals?

Quite simply, we are helping them to save tens of millions of dollars. Collateralized businesses — whether those are cleared or uncleared derivatives, equity or fixed income financing desks, triparty funding, or treasury areas — these all have a similar problem statement: how to bring together margin and collateral requirements, tagged inventory, collateral eligibility and business constraints in a harmonized fashion for scalable systematic decision making and execution.

We help our clients construct the data and connectivity ecosystem they want to be able to best allocate their collateral at a target state. One example of this is our Cross Triparty Optimization offering, where we can recommend an optimal allocation across multiple triparty agents and orchestrate the necessary collateral movements to get the collateral, regardless of location, to the exact shell it needs to be in. The full scope of all of the various pieces of data necessary to make very comprehensive optimization decisions is only available if you join all of the clients’ internal and external data.

This holistic dataset does not exist with third parties such as triparty agents, central counterparties (CCPs), or in-margin systems. The art is to be able to scale this functionality to the specific scenarios that are important to each client. We can do this at a desk level or at an enterprise level. The results are amazing, and we hear about new use cases for our platform every day. From helping with liquidity coverage ratio (LCR), net stable funding ratio (NSFR), Comprehensive Capital Analysis and Review (CCAR) and Regulation YY, to unsecured funding, customer versus firm and cross-region, to name a few examples, the list keeps growing.

What challenges do market participants face with cross triparty and CCP optimization?

The first challenge is for businesses to understand the opportunity value and then effectively organize around extracting the benefits. Streamlining business flows across front, middle and back offices requires some adoption and new ways of thinking. Specifically, on the technology side, the main challenge is not the algos or the modeling. We are proud of our decision-making tool as it can incorporate a wide variety of linear and fixed cost constraints. However, the challenge is in connecting and normalizing the numerous ecosystems needed to facilitate delivery of the exact collateral allocation to the specified trade or shell level across agents.

Our experience in this effort is that it has not only been a win for our clients, but also for the agents, as well as streamlining collateral flows and bringing additional efficiencies to the entire collateral chain. From a high-level view, we have spent enormous resources connecting ecosystems across eligibility, inventory, optimization and booking frameworks to create a more interoperable ecosystem.

Figure 1: Cross Triparty Optimization maximizes every opportunity for the best collateral deployment.

Given recent market-related events and how they have impacted your clients, what products are sparking the most interest?

It is no secret that market volatility, higher interest rate regimes and risks that come from situations such as the debt ceiling stand-off put strain on the collateral management ecosystem. We are seeing this manifest in client interest in a few ways. One is the need to see detailed collateral and its liquidity value in real-time, not only on a projected basis but also what is sitting in depos from a centralized viewpoint. Therefore, when markets move, or when the regulator calls, participants have a clear picture of their inventory and exposures.

Given the market stress, we are also seeing demand for our Booking Service. When balance sheets are fluctuating, and collateral flows are very active, it is not sufficient to manage this with spreadsheets or manual uploads anymore. Operation teams need to scale and rely on systems that can seamlessly orchestrate high volumes of collateral in and out. Resiliency and scalability are becoming very high on the list of requirements for proper collateral optimization. Finally, higher rates have simply made the value case for optimization multiples greater than it was just a couple of years ago.

What benefits are you providing to clients through your platform?

As we noted, financial resource savings are typically the most visible benefit. This means reducing liquidity costs, funding costs and capital usage. Some firms estimate that there are hundreds of millions in savings on the table if they get enterprise collateral optimization done correctly. Most firms are in the early stages of this journey but, in practice, we have seen multiple millions saved by using our platform to optimize multiple binding constraints.

The other benefits are softer. We have seen our clients use our platforms to break down regional or desk-aligned silos. This means using Transcend for a common place to view inventory, eligibility, obligations, or for decision making. The final obvious benefit is that we are more precise and efficient than other allocation processes. We have proven that we can allocate with very high precision, exceeding a 99.8 per cent success rate. This means fewer top-ups, fewer collateral movements and lower substitution needs.

What are your market predictions for 2024?

I believe there will be a rapid acceleration of centralized collateral decision-making. The benefits are too large to wait and regulators are asking for this. Cobbling together spreadsheets or management information system (MIS) reports based on end-of-day (EOD) views is not going to be an acceptable standard. Our clients are looking for real-time holistic views.

Collateral optimization will become a broadly recognized front-office position, if not its own business unit. We also expect rapid growth in Europe and Asia. These markets have historically been increasingly bifurcated and complex operationally compared to North America. Technology is available to simplify working within or across these markets. Finally, buy-side firms, in particular asset managers, will seriously re-evaluate how they utilize outsourced services and what they should be paying for versus what they can do in-house.

There has always been a call across the industry for improved interoperability. From our perspective, the coordination and partnership happening across the sector has never been higher. Speaking for Transcend, all the triparty agents, CCPs, vendors and other industry players that we work with have been great partners on this journey for the benefit of our mutual clients.

As a result, our platform, and others like ours, are bringing optimization and interoperability closer to reality. This indicates that there are exciting times ahead for the securities finance industry.

Technology is finally enabling business transformations that have been discussed for a long time. My view is that this will lead to new trading opportunities, new sources of revenue and new ways to reduce a number of legacy risks. We are happy to be a part of this dynamic ecosystem and have a great set of people guiding it.

This article originally appeared in the ISLA Daily publication No.2, June 21, 2023, used with permission.

United States Debt Ceiling Standoff Creates Tremors in Collateral Markets

Posted on by Peter Napp

For decades the collateral markets have operated on a simple premise: collateral with short maturities from high-quality issuers is preferable to collateral with longer maturities from issuers with lower credit quality. This assumption helped participants mitigate the risk that collateral would decrease in value by accepting collateral with short maturities from sovereign issuers with high creditworthiness. As firms accept broader types of collateral, they seek to mitigate liquidity and credit risks with increased haircuts, more onerous eligibility criteria, and more frequent margining. However, the recent stalemate on the US Debt Ceiling has begun at least a short-term rethink of that basic notion.

The stature of the United States in the markets has always been evident. The US Dollar has long enjoyed the status as the dominant reserve currency and is used to price a variety of financial assets and commodities across global markets. The low credit risk of the US Government, and the use of the dollar as the global reserve currency, have allowed US debt to be considered a “risk-free asset”. From a credit risk perspective, the prevailing US Treasury rates are used as the risk-free rate for financial analysis and valuation of many assets. Therefore, US Treasuries were often widely accepted as collateral under securities finance transactions, CCP exposures, and as bilateral derivative margins. Treasuries often enjoy the lowest haircuts under those contracts with few limits on the amount allowed as eligible collateral.

As the US has approached the debt ceiling, where no additional borrowing would be allowed under current legislation, market participants have begun to plan for a variety of potential outcomes in the collateral markets. They are evaluating the potential risks of the US failing to increase the debt limit. One risk being discussed is what will happen to short-term T-bills if there is uncertainty about whether the US can meet its short-term obligations. Participants are game planning what would occur if counterparties instituted a brief pause in accepting T-bills, a downgrade of US Debt leads to collateral becoming ineligible, or an increase in the haircut on that collateral is warranted during this hopefully brief period of turmoil. This of course runs counter to the long-time notion that high-quality, sovereign debt with short maturities, is always preferable to other assets.

Firms can use a variety of capabilities to monitor changes in the market and prepare for this potential event. Visibility into changes in collateral eligibility under counterparty agreements is one critical capability. Firms can use a comprehensive collateral eligibility framework to gain access to Triparty, CCP, and bilateral agreements to monitor for changes in their governing agreements that may limit the eligibility of short-dated Treasuries. Additionally, transparent access to margin activity can help market participants know where they are accepting these assets, and under what haircuts, in the event they need to take steps to mitigate potential risks. Lastly, firms are using eligibility and optimization solutions to better understand outlets for these assets if certain counterparties no longer accept them or increase haircuts. If counterparties continue to post these asset types, a comprehensive eligibility and optimization solution can help evaluate intra-day where a firm can route that collateral for the best use for their own obligations.

As participants look for solutions to manage through events that change the funding and collateral markets, Transcend continues to partner with firms to offer modular-based solutions to comprehensively manage their collateral eligibility, collateral balances, and margin activity. This period of uncertainty will pass; however, firms should continue to invest in solutions to effectively manage these risks.

Fasten Your Seatbelts: Monitoring & Preserving Liquidity During Turbulent Markets

Posted on by Peter Napp

Current market turmoil and bank failures highlight the need for enhanced liquidity monitoring and forecasting that relies on collateral eligibility, inventory, and optimization capabilities. 

Market events over the last several weeks have shown that liquidity can change quickly. Markets that are functioning well can become volatile, spreads can increase, and liquidity become scarce.

This is especially true for firms facing issues with balance sheet, liquidity sources, and capital position. However, even firms that are not facing liquidity issues can see changes in eligibility, haircuts, and pricing terms that affect the cost of funding.

To effectively manage collateral in this environment, it’s critical for organizations to have:

  • Visibility into the pools of collateral that are available for funding
  • Knowledge of where that collateral is eligible and how it can be mobilized
  • Insights into funding obligations for triparty, bi-lateral and CCP exposures

These capabilities are critical inputs into an optimization strategy that preserves scarce high-quality assets to use when required.

Over the years, firms have built infrastructure that fits the needs for individual use cases for specific product types. These solutions helped provide scale to an industry as volumes increased and the number of venues and trading parties increased in parallel.

Historically, siloed growth of business units has led to disparate systems being used within an organization, causing less efficient overall collateral usage.  The ecosystem would often have multiple subledgers to support local or regional settlement across different asset classes, margin systems to support workflow needs for specific markets, and eligibility tools to support collateral management. While these tools helped firms grow in certain markets, the federation of these solutions became impediments to getting a full view of collateral and liquidity across the line of business or enterprise. Understanding total pools of collateral, eligibility of that collateral for margin obligations and funding trades, and where that collateral is currently being used became difficult.

As firms increasingly looked for ways to efficiently use collateral and liquidity, they looked at opportunities to consolidate their infrastructure. Aggregating and harmonizing these ecosystems can be a costly and time-consuming endeavor but can unlock greater efficiency throughout the organization. There were varying levels of success in creating more shared solutions given inherent differences in markets, tech debt and large costs of conversion.  However, technological advances allow leading solutions to integrate and harmonize these solutions to provide the transparency needed to efficiently use these resources. This enabled critical inputs into an optimization solution that recommended improved collateral usage.

These capabilities not only provide efficiency during normal market environments, but that value increases when liquidity becomes scarce and efficient usage of your collateral becomes vital:

Inventory Management: Gaining transparency into a firm’s collateral pools across business lines, sub-ledgers, and margin systems in real-time becomes a critical capability to know the total assets available for margin and funding purposes.

Eligibility: Understanding where, and at what quantities collateral is eligible becomes a critical capability to efficiently use lower quality assets that may be difficult to evaluate manually. Additionally, transparency into changing eligibility terms across contracts including bi-lateral, triparty, and CCPs provides insights into the where asset classes can be deployed in changing markets.

Optimization & What-If Analytics: Making smart decisions with your collateral requires technology solutions that enable the evaluation of multiple constraints in a common solution. Where can collateral be pledged based on eligibility rules? What collateral pools and obligations should be included in various scenarios and applied at what region and time? Which optimization goals including liquidity costs, haircut, tenor matching, and use of customer vs firm assets should be included into a common optimization run?  Harmonizing these constraints and goals into a common optimization solution allows a firm to efficiently deploy the “cheapest to deliver” across all these factors. The solution uses the least favorable assets where possible while preserving more liquid collateral to be retained for other uses.

These capabilities often support a firm’s risk and liquidity management policies to provide the tools needed to manage these important risks.  They provide an important overlay to existing infrastructure that gives a window into funding and collateral operations. Transcend continues to partner with our clients across the financial services spectrum to help them gain transparency into their collateral pools and more optimally deploy those assets during various market environments.