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Corporates rethinking collateral management in light of recent regulation

A report produced by Aite Group for Euroclear - Collateral Management Dynamics in Europe: Searching for Central Intelligence - has highlighted the current challenges and opportunities facing treasurers and collateral managers in Europe’s capital markets.

It covers some of the pressing concerns facing companies such as internal restructuring and investment in collateral management, as well as expectations for future services in light of the introduction of key pieces of regulation and Target2-Securities (T2S). It is based on interviews with 20 firms active in European markets, conducted in the first half of 2015.

Some of the key findings include:

  • stronger and more numerous relationships among tri-party repo participants will be key in the coming years, with related activity between European firms and non-European counterparties doubling from 17.5% in 2001 to 34% in December 2014.
  • 70% of respondents consider collateral transformation (where one type of collateral is substituted for another via a series of repo or securities lending arrangements) to be high on their agenda.
  • the challenge of collateral mobility was reported by the greatest number of respondents, at 35%, along with pricing assets. Accordingly, firms are looking to tap global pools to manage their immediate liquidity challenges, and thereby increase intra-day credit needs.
  • having a single global view of their inventory remains the ‘Holy Grail’ for marketplace participants.
  • 30% of respondents lack an optimisation strategy.

According to the Aite Group, companies are currently re-evaluation collateral management in light of recent regulation. Virginie O’Shea, senior analyst at Aite Group, said: “EMIR is heightening the need for a more proactive approach to collateral, on a more frequent basis.”

Jo Van de Velde, managing director and head of product management at Euroclear, said: “This timely research underscores our belief that market dynamics and regulatory changes are propelling collateral management issues to the forefront of both financial and non-financial firms, in a major way.”

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