White paper: Collateral Management 2.0 - Preparing for OTC Derivatives Margin Regulation and Beyond

Written by: Fleming. Team

Market participants are rapidly advancing their efforts to achieve timely compliance with global bilateral OTC derivatives margin regulations. A combination of internal tools and industry/vendor solutions are used to achieve regulatory readiness; however, several challenges like the lack of harmonization across global regulators, timely negotiation of a large volume of trading agreements, and cohesive development of new operating models continue to persist.

An ideal state, Collateral Management 2.0 is expected to be incrementally built upon nine foundational elements which can enable optimized economic allocation, sophisticated risk management, and streamlined operating models. However, a projection of the cost of managing collateral using current models presents a compelling case for next-generation collateral management. Funding costs for each sell-side organization is expected to exceed USD 570 million annually. In addition, operational and infrastructure costs for individual sell-side organizations is expected to increase by 260% to USD 26.6 million by the year 2020.

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