What are the most important things going on in collateral management at the moment?
There’s a lot of discussion around the regulation, and a big focus on how the market has reacted to variation margin rules for non-cleared over-the-counter (OTC) derivatives, which came out earlier this year and affected most financial firms.
This year, there have also been discussions around the preparation for the initial margin exchange for uncleared OTC derivatives in terms of getting organisations ready and the connectivity to various market infrastructure platforms.
There are also still a lot of questions around the effect of the second Markets in Financial Instruments Directive (MiFiD II), which comes into force in January. It will be interesting to see if there will be another increase in volumes, caused by the inclusion of foreign exchange (FX) forwards under the OTC derivatives margining regime.
How does Apex fit into that?
Wonderfully well. We’ve done a lot of work with our clients to help them get compliant. We’re lucky enough to have a number of clients who have been in the ‘first wave’ of rules for the uncleared OTC derivatives. With those clients, we’ve helped to get our system ready with the functionality that’s needed to support all of those regulations. Also, the connectivity to the collateral utilities is now available out-of-the-box for their clients.
How will MiFID II affect the collateral management space next year?
We are already seeing the impact of the reclassification of FX forwards to come under the European Market Infrastructure Regulation margining regime. This is driving a significant uptick in volumes of collateral calls as many funds trade FX only and will suddenly have to start exchanging collateral. We have asset manager clients expecting a three-fold increase in the volume of variation margin calls post MiFID II.
Is there any part of MiFiD II regulation that concerns you, or do you welcome it? Will it affect automation processes for any area of Apex specifically?
Yes, we have created a highly-efficient collateral operations tool to provide full straight-through processing of the margin call process. Our clients experience significant efficiency gains from deploying Apex Collateral. Each collateral operations professional can now process several hundred collateral calls per day as we achieve near-full automation. The only manual intervention in the process is in error resolution and exceptions in data validation. Every human touch point that can be eliminated has been automated.
As director of business development, how will regulatory changes affect buy side operations for you?
With the current wave of regulation, it’s interesting for me to find out how prepared the market is and to ensure we have the solutions to support it. We have recently gained several buy-side clients who had previously outsourced their collateral management.
These firms are bringing the processes in house and investing in platforms, such as Apex Collateral, to reduce costs and to ensure they are compliant with the regulations. They cannot outsource regulatory compliance.
How do you think Brexit might affect your job role in London in the future?
Everything around Brexit seems unclear at the moment. Until we really know what all the terms are—and where we stand in terms of how it will affect the market structure, treasury and liquidity models and general operation processes—it’s all rather speculative, unfortunately. We will also see many banks and asset managers shifting more operations out of London, of course. Luckily for me, my clients are spread across the globe.
The CEO of Goldman Sachs recently tweeted that he expects to be doing a lot more business in Frankfurt due to Brexit. Do you think that will also be the case for you?
I would say that we expect to be doing more business, not just in Frankfurt but in all the financial centres, as the demand for collateral management solutions expands, globally. As a global technology partner, we are ready to support our clients as they adapt to all the prevailing regulatory, political and market conditions.
What do you predict the hot topics for collateral management will be in 2018?
I predict that we will see many firms making the transition from tactical solutions to the regulations that have hit to a more strategic approach. Centralisation of the collateral function will be key, as will coping with rising interest rates and increased collateral requirements, which will start to drive optimisation.
Apex can leverage the resources of FIS. How much does this help in managing clients’ needs regarding regulation?
FIS is the world’s largest financial technology firm. With over 55,000 employees and 20,000 clients, we have the strength and depth of resources to service our global client base. However, our size and scale are relevant only as they help our clients get where they want to go faster. FIS’s role in reinventing the future of collateral management technologies has caught the attention of a global marketplace. We now serve firms of all sizes from tier-one investment banks through to niche asset managers, helping them deal with the challenges of the global regulatory regime.