October 16, 2015

New regulations and financial market change mean firms must adapt to survive in brave new collateral management world, according to BNY Mellon/Field Effect paper


LONDON, Oct. 16, 2015 /PRNewswire/ -- Firms that fail to address a range of 'fundamental' strategic questions around changing collateral management requirements will find themselves at a disadvantage when it comes to supporting their future funding and investment needs, according to a new white paper co-authored by BNY Mellon, a global leader in investment management and investment services, and London-based consultancy The Field Effect.

The reformation and restructuring of the financial markets in the aftermath of the global financial crisis has had a profound effect on how collateral is used and managed. These ongoing changes to collateral supply and demand dynamics are challenging even the most sophisticated and experienced organisations, with many firms (both financial intermediaries and asset owners) struggling to grasp the full implications and potential opportunities of the new landscape.

The new paper – Collateral Management: A Review of Market Issues– argues that consolidation is "a highly likely outcome" and collateral management will evolve from being primarily a process of managing assets for margin purposes, to a position where much greater consideration is required to manage assets from a collateral value, cost and balance sheet perspective.

The paper examines a number of themes, among them the possibility of a shortfall of market collateral; potential changes firms can make to existing account structures, systems and services; the role of third party service providers in helping market participants to manage collateral effectively; and the future shape of collateral management.

Given the current fragmented collateral landscape, key challenges identified by the paper include:

  • Compliance with new regulations governing cleared and non-cleared over-the-counter (OTC) derivatives;
  • For the buy-side, choosing partners who can support  complex requirements for margining and collateral mobilisation;
  • For banks, meeting complex interlocking collateral and capital regulations, whilst offering customers collateral services at a viable price point;
  • The ability of custodians to provide customers with a cost-effective collateral management service with integrated tri-party capability.

Mark Higgins, managing director, Markets Group at BNY Mellon, and one of the co-authors of the white paper, said: "The development of an effective collateral management solution is a complex combination of market variables, many of which continue to evolve. We believe those firms who fail to master the fundamental strategic collateral questions will find themselves at a considerable disadvantage. Banks may find themselves unable to fund core business lines or meet the needs of clients cost effectively, while asset owners and managers may find themselves unable to pursue preferred investment strategies. Whilst there is consensus that the subject area is complex and in flux, it is also clear that considerable prizes are available for those who identify their specific collateral service elements and requirements."

"Asset managers, pension funds, insurance companies, banks and broker-dealers face complex regulatory and market structure changes," said David Field, founder and principal at The Field Effect. "This task should not be underestimated and many firms may not fully appreciate the challenges they face, nor recognise the opportunities available in the market. As the sophistication of collateral services evolves, we will see increasing levels of innovation from service providers who truly understand their clients' needs and have the vision to develop services to support them. A critical part of the collateral challenge will be for firms to select the service elements they require and identify the service provider that can most effectively meet their needs in the long term."

The new paper can be found at http://bny.mn/1LbYOAW

Notes to editors:

BNY Mellon

BNY Mellon Markets Group combines the capabilities and talents of our foreign exchange, securities finance, collateral management & segregation, liquidity services, capital markets and prime brokerage businesses to provide our clients with a comprehensive array of products to enable their investment process. The Markets Group has $3.1 trillion of lendable assets and $351bn average daily loans outstanding; $660bn in global tri-party collateral management balances; $47.4bn in assets under currency administration; $22.5bn FX gross US dollar equivalent average daily client volume; and $169bn average balances invested via the Liquidity DIRECT portal as of June 30, 2015.

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of June 30, 2015, BNY Mellon had $28.6 trillion in assets under custody and/or administration, and $1.7 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit www.bnymellon.com/newsroom for the latest company news.

The Field Effect

The Field Effect (TFE) is a boutique consultancy specialising in clearing and collateral management, spanning cleared and uncleared OTC Derivatives and Exchange Traded Derivatives. We provide advisory services to every participant in the industry value chain including; buy-side and sell-side firms, clearing houses, custodians and CSDs. TFE was founded and is led by David Field, an acknowledged expert in clearing and collateral management. With over 20 years financial services consulting experience, David has led many clearing and collateral advisory projects across buy-side, sell-side, CCPs and custodians, spanning strategy, target operating model, and technology.

This press release is issued by The Bank of New York Mellon to members of the financial press and media. All information and figures source BNY Mellon unless otherwise stated as at June 30, 2015. The Bank of New York Mellon, London Branch, registered in England and Wales with FC005522 and BR000818. Branch office: One Canada Square, London E14 5AL. The Bank of New York Mellon is supervised and regulated by the New York State Department of Financial Services and the Federal Reserve and authorised by the Prudential Regulation Authority. The Bank of New York Mellon London branch is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details about the extent of our regulation by the Prudential Regulation Authority are available from us on request.

Contact:          Tim Steele                    
                       +44 20 7163 5850
                       tim.steele@bnymellon.com

SOURCE BNY Mellon