Collateral now at the heart of decision making
13 November 2013 London
Image: Shutterstock
Financial markets specialists Catalyst Development has created a tapestry of the key events that have taken place regarding collateral from 2008, up to a predictive view of what 2016 may hold.
Storme Thompson, the head of collateral management at Catalyst, drew the tapestry together. She said that collateral management is now a strategic function, positioned at the heart of decision making within investment banking.
鈥淲hat was once a peripheral operations function, with a focus on mitigating counter-party and/or credit risk, is now a revenue generating opportunity鈥攐r at least a cost reduction function. Decisions are now owned by the front office and the cost of collateral is used in derivatives valuation, in many cases leading on to capital allocation criteria.鈥�
鈥淚t鈥檚 impossible to over-estimate how radical this change is from the hidden back office function of only a few years ago. To understand such a fundamental shift, industry leaders need to see the bigger picture of why change has happened, in order to tackle the challenges ahead. We have worked with leading industry experts to create this simple yet powerful tapestry of key moments, ideas and thoughts, putting individual experiences into perspective and allowing our clients to benefit from the shared knowledge that creates.鈥�
Catalyst is offering specific advice on a number of key issues including pricing, and how firms can understand the incremental impact to funding costs for each new trade. The firm describes how clients can then fund this liability in the 鈥渟martest way鈥� through their optimisation model, in order to gain a pricing advantage over other market participants.
The firm said that it intends to continue to develop the tapestry as a key discussion and planning tool for clients.
Storme Thompson, the head of collateral management at Catalyst, drew the tapestry together. She said that collateral management is now a strategic function, positioned at the heart of decision making within investment banking.
鈥淲hat was once a peripheral operations function, with a focus on mitigating counter-party and/or credit risk, is now a revenue generating opportunity鈥攐r at least a cost reduction function. Decisions are now owned by the front office and the cost of collateral is used in derivatives valuation, in many cases leading on to capital allocation criteria.鈥�
鈥淚t鈥檚 impossible to over-estimate how radical this change is from the hidden back office function of only a few years ago. To understand such a fundamental shift, industry leaders need to see the bigger picture of why change has happened, in order to tackle the challenges ahead. We have worked with leading industry experts to create this simple yet powerful tapestry of key moments, ideas and thoughts, putting individual experiences into perspective and allowing our clients to benefit from the shared knowledge that creates.鈥�
Catalyst is offering specific advice on a number of key issues including pricing, and how firms can understand the incremental impact to funding costs for each new trade. The firm describes how clients can then fund this liability in the 鈥渟martest way鈥� through their optimisation model, in order to gain a pricing advantage over other market participants.
The firm said that it intends to continue to develop the tapestry as a key discussion and planning tool for clients.
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