Buy-side and sell-side organisations are increasingly switching collateral management providers in the wake of stricter rules on initial and variation margin.
Research from SIX Securities of 30 IT decision makers and 30 collateral experts from buy- and sell-side firms showed that around half have replaced or added new providers in the last 18 months, with a further 18% in the process of doing so.
As the new rules around collateral for uncleared OTC derivatives continue to bite, firms are pressuring their service providers for optimisation tools and real-time settlement.
The survey cited real-time settlement as the most important factor in the selection process for a collateral management provider, followed closely by CCP collateral acceptance and real-time reporting.
“With regulations such as Basel III requiring banks to hold higher amounts of high-quality collateral (or cash), financial institutions are trying to cope with the reduced profitability of these positions by increase operational efficiency and by optimizing their cash and collateral management capabilities,” said Marcus Harreus, head of clearing, SIX Securities Services.
The variation margin rules for bilaterally traded derivatives went live for Europe in March this year, and in September globally.