The Road to an Effective Collateral Management Program

The Road to an Effective Collateral Management Program 3 Collateral Management Roadmap The continued focus on collateral management means firms should begin mapping out a programmatic firm-wide response, as the implementation could become complex and have significant operational implications. Firms should consider the following steps on their journey to an efficient collateral management program.  1 Model: Select Your Solution Market participants have several models for collateral management — insource, outsource, or modular outsource. Building in-house collateral management capabilities requires extensive collaboration throughout margin, treasury, funding, and trading teams with IT systems and governance to match. Given this, only the largest firms are likely to fully insource these functions, leaving most firms to outsource some elements of their collateral management program. Collateral management outsourcing is a potentially valuable solution for firms looking to streamline a function that is not a core competency. A partial or wholly outsourced solution also gives firms access to a range of sophisticated management tools and analytics without the up-front fixed costs usually associated with building in-house. Modular solutions provide industry participants the flexibility to evaluate various components of their collateral program, retaining core functions and outsourcing to specialist providers that can enhance technical and operational expertise. When outsourcing a collateral management program, firms should consider the type of oversight required and which key stakeholders throughout the firm will be accountable for external engagement. Technical integration is the foundation for a successful relationship with an external provider. Collateral management infrastructure should be flexible enough to incorporate workflow changes as well as keep up with rapid technological and regulatory change. Firms will want to ensure that the parties to which they outsource can implement continuous upgrades to complex algorithms to satisfy evolving regulations. New firm expertise may be needed as technology teams grow and product experts work closely alongside their various collateral management partners to define pre-set collateral optimization objectives. Make the Most of Your Data Oversee the Collateral Life Cycle Source Liquidity Align Firm Structure and Resources Select Your Solution Find the Right Collateral 2 ORGANIZE 1 MODEL 3 OPTIMIZE 4 CONNECT 5 ANALYZE 6 MONITOR