Buy-side faces collateral challenge warns BNY Mellon

 

The buy-side is under increasing pressure to maintain access to high-grade collateral; yet some firms are not sufficiently prepared for the impact of incoming regulation, according to Bank of New York Mellon.

 
Changes including Basel III and the European Commission’s UCITS V directive, together with the implementation of central clearing arrangements, pose a challenge to buy-side models for risk, capital considerations and collateral management. In its latest report, Collateral Management: Navigating the Regulatory Maze, the bank warns that the direct and indirect impact of regulations varies significantly across market segments and individual firms, as well as geographically – potentially undermining companies that have not made comprehensive plans. 

The key collateral trends identified in the paper as specifically driven by regulatory change include:

•    Increased use of non-cash for certain collateral transactions;
•    Longer maturity of collateral-related transactions;
•    Increased demand and use of HQLA assets;
•    Greater levels of collateral required for use by central counterparties (CCPs); and
•    Increased complexity of collateral management solutions to ensure enhanced efficiency and ultimately collateral optimisation.

 “The introduction of numerous interconnected, and at times conflicting, regulations have resulted in some market players employing a 'just-in-time' or 'self-preservationist' approach; this is no longer a viable option,” said Mark Higgins, co-author of the study at BNY Mellon. “Asset managers, insurance companies and pension funds need to develop a comprehensive approach to comply with regulatory changes effectively and deliver more tangible benefits to their clients."
 

 

 

 

 

For more information, please contact:

Anita Karppi

Managing Director

K&K Global Consulting

T: +44 (0) 203 411 3996

E: akarppi@kandkgc.com

 

About K&KGC

K&KGC is a unique buy-side consultancy which engages with senior buy-side heads of trading on a regular basis with research and roundtable debates on topics of their choice. The company organises private and exclusive Alpha Trader Forum (ATF) and Asia Buy-side Forum (ABF) roundtable debates in equities, fixed income and foreign exchange in London, Stockholm, Copenhagen, Frankfurt, Paris and Singapore, Hong Kong, Boston and New York. K&KGC also produces the Buy-side perspectives - news, research, rankings and awards based on buy-side input on key issues for the dealing desk and trading environment.