With the introduction of bilateral margin rules for uncleared OTC derivatives buy-side firms involved in OTC markets increasingly have to manage collateral as a result of daily initial and variation margin calls. Banks and large asset managers have traditionally purchased enterprise solutions costing hundred of thousands or even millions of pounds to manage their collateral workflows and monitor exposures. However, this is not a viable option for corporate treasury departments due to prohibitively high costs of ownership (a combination of high one off capital expenditure and recurring running costs). Previous reliance on spreadsheets or in-house databases and on treasury management systems which just record the overall collateral outstanding combined with highly manual processes is no longer viable in the fast changing regulatory landscape and the evolution of the derivatives markets. This is a complex operating environment. 

Specialist low cost alternatives

The first cloud based end to end collateral management workflow solution was launched in 2014 by CloudMargin and changed the market with its SaaS (Software as a Service) delivery model and pricing structure without compromising on functionality. the CloudMargin platform provides risk management and control around the collateral management processes, including:

• management of individual collateral agreements (including initial onboarding)
• calculation of expected initial and variation margin calls (for receipt and delivery)
• verification of collateral eligibility
• management available inventory
• optimisation of available inventory via user defined prioritization 
• instructions on collateral movements
• management of monthly interest process
• extensive management information through a dedicated reporting suite.

The CloudMargin platform allows users to manage the end-to-end collateral management process from digitisation of the collateral agreements to management of the daily margin process. As well as providing dispute processes for bilateral margin calls to final movement of the selected assets to meet individual margin calls. See high level overview below:

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CloudMargin development since 2014

Since its launch in 2014 the main developments have included:

• expanding the connectivity across additional brokers, custodians and CCPS for automation of the daily trade and valuation feeds and available inventory lists
• development of strategic alliances including SWIFT to allow execution of collateral movements from the platform, RAVN for digitization of collateral agreements, UNA Vista, REGIS TR and DTCC for EMIR transaction reporting, OpenGamma for Cleared OTC Derivatives Initial margin simulation

There are now over 50 CloudMargin users globally made up of corporates, asset managers and smaller banks

Pricing and future development

Cloudmargin is a SaaS platform and is able to offer much lower pricing than the traditional legacy approaches. CloudMargin pricing structure is tiered and based on the number of collateral agreements held on the platform. For a small UK FTSE company with 10 or less agreements the typical charge would be around $15,000/year.

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CTMfile take: The use of collateral is bound to grow as the regulators try to reduce risk in financial markets. The CloudMargin SaaS platform takes the barriers - administrative hassle and risk - out of any decision to use collateral.