TCS Capital Markets Forum | Rajen Shah One door closes, another opens
Rajen Shah, business head, global SFS Collateral Management at Citi discusses how companies can sharpen their competitive edge in the evolving regulatory landscape.
I think the most successful institutions will be those that have invested in the infrastructure and the netting capabilities that will enable them to offer their underlying clients a way to post less collateral. Due to the collateral squeeze, banks need to be able to not only re-hypothecate and re-use assets but optimise and transform them in the most cost effective way. The other area where banks and brokers can
“I think the most successful institutions will be those that have invested in the infrastructure and the netting capabilities that will enable them to offer their underlying clients a way to post less collateral.”
As the years unfold, there are many challenges that organisations will have to face such as the operational complexity, technology investment, collateral squeeze and infrastructure spend to comply with the new requirements. However the regulations are not just about the difficulties, but also about the competitive advantages that can be gained. For example, take the broker/dealer segment. They want to continue to grow their derivatives business but because of Basel III, they need to do that in a capital efficient manner. One way is to look at the services in the OTC, exchange-traded and cleared derivatives space where they can offer a competitive advantage.
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gain ground with clients is to make the clearing process as efficient as possible. This will help lower capital charges which in turn will allow them to price their derivatives more competitively. Equally as important is the ability to provide a comprehensive collateral and automated management process that can deal with collateral moving from an end of day to an intra-day, real- time process. It also has to handle non-cleared as well as cleared activity, variation and initial margin and segregated amounts. All of those things require a great deal of operational efficiency for the actual day-to-day procedures to work. Hand in hand with collateral management
is a strong and sophisticated risk management function. Those institutions who really understand and can manage risk well will be able to offer a broader set of collateral than, for example, just the narrow set of government bonds from the top OECD (Organisation for Economic Co-operation and Development) countries.
Institutions will also be able to attract business
if they offered segregated structures such as quad party. This is because clients want to be able to access their assets in a default situation and do not want them locked up in a non-segregated structure. ■
Best Execution | Spring 2013
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