Postcards from SIBOS II: Collateral optimization evolves further
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22 September 2011David Easthope
I spent several meetings with vendors today at SIBOS discussing collateral optimization, as these solutions become increasingly evolved due to the renewed focus in recent years. Momentum continues to be strong here. Collateral optimization (CO) is a stage of the collateral management process where a firm uses collateral assets to raise funding and to support inventory depth. This can involve a combination of efficient collateral allocation to satisfy counterparty needs and the flexibility to quickly substitute specific securities wherever they may be located. When done correctly optimizes collateral across sometimes siloed organizations. Common end users are located in treasury, operations and trading desk operations/departments. If collateral management is done correctly, firms can realize the benefits of, for example, pledging the cheapest delivery of assets (e.g., cheapest bonds), reducing the size of the liquidity buffers/reserves, and achieving cross-pool optimization/collateralisation (OTC, repo positions, etc). CO is a part of software packages offered by firms like Algorithmics, Calypso, Sungard and Misys among others. CO is something we have covered in recent reports by analyst Cubillas Ding- see here for more Collateral Management Solutions: Mitigating Toil, Trouble, and Collateral Damage in Uncertain Times