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Sibos 2017 Toronto

New research reveals gap between collateral managers and IT decision makers

28 September 2017

Findings from a pan-European research study indicates that the two groups fail to see eye-to-eye on issues such as the price of collateral, HQLA-shortfall and future challenges for the collateral management industry.

An industry wide European study from SIX Securities Services today revealed the differing opinions between IT decision makers and collateral experts on a range of key issues. This split is most evident when it comes to views on the availability of high-quality liquid assets (HQLA). 

The vast majority (83%) of collateral respondents think that there is a shortfall while only 47% of IT decision makers agreed. 63% of collateral respondents went as far as to say that there is a significant shortfall, while only 17% of IT respondents hold this view. The discrepancy between the two is more apparent within sell-side organisations where there is a 47% difference on the issue compared to a 17% difference in buy-side organisations.

Differing opinions between the two areas of specialisation also extend to views on the quality of collateral. 53% of IT decision makers believe that it is acceptable for collateral to be low quality, complex and opaque so long as it is cheap, whereas only 30% of collateral respondents have this view. 

In reverse, almost two thirds (60%) of collateral heads believe that collateral must be simple, high quality, liquid and easy to value. Only 13% of IT respondents agree that it needs to be simple while 33% believe that the cost of collateral is ‘the only thing that matters’. While collateral specialists are likely to have a deeper understanding as to the requirements of collateral, the level of disparity between the two is cause for industry concern, particularly in terms of future challenges. 

Despite over half (53%) saying it is acceptable for collateral to be low quality, IT decision makers think that the biggest collateral optimisation challenge for the future is in fact low quality collateral (57%). The biggest concern for collateral heads (70%), however, is that with the cost of lending and borrowing increasing, it will make the cost of collateralising OTC trades too expensive to make the trading activity viable.

Four in ten (40%) respondents feel that there is a significant shortfall in HQLA

Total 40%
IT descision makers 17%
Collateral respondents 63%
Buy-side organisations 37%
Sell-side organisations 43%

Raphael Heuberger, Head Products & Operation SIX Repo, SIX Securities Services, commented on the findings:

“People specialised in the collateral industry face scarcity of good quality collateral and an increase in complexity. Internal IT development units within financial organisations are challenged to keep pace. As this capability-gap widens, financial institutions tend to increasingly cooperate with external providers capable of covering their needs. It’s highly probable that IT people now find themselves more pre-occupied with the release timelines of their providers than with establishing their own in-house development capabilities. This may actually be a good thing as it allows collateral management experts to create new solutions more rapidly as they can, effectively, outsource the problem. This can only be to the common good of the industry.”

About the research:

The study surveyed 60 professionals in the UK, Germany, France, the Nordics and Switzerland. 30 respondents were IT decision makers and 30 collateral experts from buy-side and sell-side financial services institutions.  The number of respondents from buy-side and sell-side organisations was evenly split with 30 respondents from each. The average value of respondents’ organisations’ assets under management is $323 billion USD. For more information, contact us.

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