Collateral management at risk of becoming a commodity
07 May 2013 London
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Seventy-five percent of financial institutions believe collateral management has become, or is at risk of becoming a commodity, said SIX Securities Services.
Data from a study done by the post-trade services provider found that 45 percent of respondees think that collateral management is at high risk of becoming a 鈥榗ommodity鈥�, while 30 percent say collateral management is already considered a commodity.
However, 25 percent do not think collateral management will become a commodity.
The research also found that 56 percent of financial institutions have either replaced their collateral management system in the last 18 months, or are in the process of doing so now.
鈥淐ommoditisation is the process in which products and services move to a market of undifferentiated price competition,鈥� said SIX in a release. 鈥淲hile commoditisation may be desirable for uniform items such as petroleum or electricity, collateral management offerings differ greatly in many other qualities besides price鈥攕uch as risk mitigation, operational efficiency and ease of use.鈥�
Robert Almanas, head of securities finance solutions at SIX Securities Services said: 鈥淐ollateral management is at a crossroads today, with 75 percent of institutions believing it is at risk of becoming a commodity. Will it replicate the oil or gas industries and become a commodity product, or will institutions seek out providers with value add differentiators?
鈥淐ollateral management is far more than just providing a view of, and netting, multiple streams of collateral across silos. Collateral management controls counterparty risk exposure more efficiently and ensures that market and operational risks are mitigated.鈥�
鈥淭ri-party collateral management systems completely ring-fence a financial institution鈥檚 assets, protecting them from 鈥榗o-mingling鈥� and, in the event of a default, allow segregated assets to be easily identified and returned to their owners.鈥�
The financial institutions interviewed were 55 percent buy-side intuitions and 45 percent sell-side. Of the buy-side institutions interviewed, the average assets under management (AuM) was 拢56.7 billion.
Data from a study done by the post-trade services provider found that 45 percent of respondees think that collateral management is at high risk of becoming a 鈥榗ommodity鈥�, while 30 percent say collateral management is already considered a commodity.
However, 25 percent do not think collateral management will become a commodity.
The research also found that 56 percent of financial institutions have either replaced their collateral management system in the last 18 months, or are in the process of doing so now.
鈥淐ommoditisation is the process in which products and services move to a market of undifferentiated price competition,鈥� said SIX in a release. 鈥淲hile commoditisation may be desirable for uniform items such as petroleum or electricity, collateral management offerings differ greatly in many other qualities besides price鈥攕uch as risk mitigation, operational efficiency and ease of use.鈥�
Robert Almanas, head of securities finance solutions at SIX Securities Services said: 鈥淐ollateral management is at a crossroads today, with 75 percent of institutions believing it is at risk of becoming a commodity. Will it replicate the oil or gas industries and become a commodity product, or will institutions seek out providers with value add differentiators?
鈥淐ollateral management is far more than just providing a view of, and netting, multiple streams of collateral across silos. Collateral management controls counterparty risk exposure more efficiently and ensures that market and operational risks are mitigated.鈥�
鈥淭ri-party collateral management systems completely ring-fence a financial institution鈥檚 assets, protecting them from 鈥榗o-mingling鈥� and, in the event of a default, allow segregated assets to be easily identified and returned to their owners.鈥�
The financial institutions interviewed were 55 percent buy-side intuitions and 45 percent sell-side. Of the buy-side institutions interviewed, the average assets under management (AuM) was 拢56.7 billion.
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