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Technology and Collateral Management: Why We Need to Embrace Automation in STP

Vast improvements in technology allow firms to manage collateral more seamlessly than ever before. Technology facilitates automation, while automation facilitates speed, scale, accuracy and straight-through-processing (STP). And this trend is showing no signs of stopping. Firms now have access to highly automated collateral management that helps them become more efficient than ever before. 

In today’s more volatile markets, the use of automation for collateral operations is essential. Automation takes the time-consuming manual tasks that were previously stumbling blocks to an efficient process, automates them and presents management with data and STP exceptions that were previously not visible and or available. This allows firms to make faster and more informed decisions. 

Before automation practices and systems were in place, every margin call, every collateral validation check and every movement had to be processed manually, leading to errors and inefficiencies.  A strong STP system architecture allows firms to analyze a transactional problem and process a solution automatically.

However, not all firms have embraced automation and technology in collateral management. Estimates show that there are still some 20% of current OTC market participants that still rely on email and spreadsheets, showing additional room for growth and efficiency. With the unclear margin rules in the final stages of implementation, now is a great time for firms to make the leap. 

Industry leaders in the risk management space are constantly working to develop ways to improve operations and reduce cost in collateral management and across the entire margin and collateral process. By integrating Cloud-based, single instance collateral management platforms with messaging applications, covering a broad range of asset classes and workflows, to manage the margin call process to better comply with regulations, avoid and resolve disputes, and increase operational efficiency, firms can achieve a completely automated and integrated process across both initial and variation margin. Firms that implement automation now will benefit from more streamlined operations and will better adapt to regulatory changes.

As the future of risk management for the derivatives industry continues to takes steps forward, now is the time for a greater embrace of automation. 

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