26 May 2017
Visit EBAday.com

DTCC warns demand for collateral set to overwhelm system infrastructures

22 January 2014  |  6184 views  |  0 DTCC logo web screen shots

With regulatory changes sparking a surge in demand for collateral, current operational processes and system infrastructures looks set to be overwhelmed, the Depository Trust & Clearing Corporation (DTCC) has warned.

In a new white paper, the DTCC predicts that the raft of new rules and requirements being brought in around the world in the wake of the 2008 financial crisis could see rising margin calls running as high as 1000% and demand for collateral outstripping supply.

The paper cites a Bank of England study which estimates that collateral demands could hit $800 billion and a ISDA calculation that new initial margin requirements for OTC derivatives could top $10 trillion.

Yet, despite this approaching massive increase in demand, many financial firms either don't fully get what pools of eligible collateral they have or can't easily mobilise it. According to one study, as much as 15% of collateral is left idle, costing the industry more than EUR4 billion a year.

The increased demand for collateral will not only increase costs, it will also ratchet up operational risk and overwhelm operational processes and system infrastructures, says the depository.

In addition, technology changes will be needed to create comprehensive record keeping and reporting across the broad collateral environment of providers and services.

Mark Jennis, MD, strategy and business development, DTCC, warns: "Regulatory changes implemented over the past two years, and those still to come, have the potential to overwhelm firms and market participants with operational and risk challenges of a magnitude we have never seen before."

The DTCC is calling for strategic collaboration and a "holistic" approach on areas such as exposure calculation and margin management, portfolio margining, collateral optimisation, record keeping and reporting, communication standards, and reference data.

"The reality is that collateral challenges will be far more extensive than what has been reported thus far, and in many cases, fragmented solutions will only address certain parts of the problem and may lead to unintended consequences," says Jennis.

Read the full white paper:» Download the document now 1.1 mb (PDF File)

Comments: (0)

Comment on this story (membership required)

Finextra news in your inbox

For Finextra's free daily newsletter, breaking news flashes and weekly jobs board: sign up now

Related stories

DTCC opens Singapore trade repository

DTCC opens Singapore trade repository

06 November 2013  |  5164 views  |  0 comments | 3 tweets | 2 linkedin
DTCC partners banks on global utility for client reference data

DTCC partners banks on global utility for client reference data

30 September 2013  |  12712 views  |  0 comments | 6 tweets | 2 linkedin
DTCC buys Thomson Reuters out of Omgeo

DTCC buys Thomson Reuters out of Omgeo

24 July 2013  |  8557 views  |  0 comments | 4 tweets | 3 linkedin
JPMorgan launches Collateral Central

JPMorgan launches Collateral Central

17 June 2013  |  5938 views  |  0 comments | 4 tweets
Liquidity Alliance formed to tackle global collateral crunch

Liquidity Alliance formed to tackle global collateral crunch

16 January 2013  |  5836 views  |  0 comments | 2 tweets | 2 linkedin

Related company news

 

Related blogs

Create a blog about this story (membership required)
visit dh.comDownload the paper nowvisit www.ebaday.com

Top topics

Most viewed Most shared
BBVA launches Open API marketplaceBBVA launches Open API marketplace
10468 views comments | 47 tweets | 70 linkedin
Twins fool HSBC voice biometrics - BBCTwins fool HSBC voice biometrics - BBC
9260 views comments | 21 tweets | 24 linkedin
Bank/fintech collaboration can take transaction banking to new heightsBank/fintech collaboration can take transa...
6973 views comments | 12 tweets | 24 linkedin
UK SMEs missing out on £1.6bn by not accepting 'next gen' paymentsUK SMEs missing out on £1.6bn by not...
6952 views comments | 25 tweets | 18 linkedin
Security experts struggle in search for WannaCry clues - ReutersSecurity experts struggle in search for Wa...
6272 views comments | 3 tweets | 3 linkedin

Featured job

Six Figure Base + Commission + Stock Options
London

Find your next job