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Collateral management to go mainstream in 2017

06 January 2017


McCormack joined CloudMargin last year as the firm's London-based head of product strategy

Read more: collateral

CloudMargin’s Lee McCormack reckons 2017 will be the year collateral management goes mass-market. 

The derivatives clearing and market infrastructure veteran, who has worked at Nomura, Morgan Stanley UBS, outlined his predictions for the industry this week.

After years of discussions around collateral shortage fears, collateral optimisation and automation of collateral calls, real changes are near.

"From March 2017 almost everyone trading uncleared OTC derivatives will have to calculate variation margin, determine if a collateral movement is required and send or receive a collateral payment – this process will be required every day," said McCormack, who joined CloudMargin last year as the company's London-based head of product strategy.

The fintech firm runs a cloud based collateral management system which gives users a view of counterparty, clearing broker and CCP activity and offers real-time reporting on all collateral positions.

"If you also consider that OTC derivatives are now mandated for central clearing this means that number of margin calls being you will have to calculate and make will increase by approximately 500%," he added.

In addition, McCormack expects collateral management will become more connected.

"Adoption of electronic messaging between trading counterparties, custodians, tri-party agents and CCPs will allow users to click a button and watch as their collateral calls are sent, accepted and paid. 

"Demand for Tri-party custody services will increase as a more efficient way actually paying or receiving margin collateral."

He also expects the rise of the CCPs to continue, with all major CCPs will look to bring their trade processing capability to the non-centrally cleared market.

Finally, McCormack predicts a rapid increased adoption of cloud technology in financial services.

"We saw a tipping point mid-way through 2016 in our conversations with new clients.  We no longer had to persuade them of the benefits of our platform being cloud-based.

"There is now a presumption that using the cloud is safer, more secure and significantly more cost efficient than using your own locally hosted servers."


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