Collateral Management Solutions: Mitigating Toil, Trouble, and Collateral Damage in Uncertain Times

by Cubillas Ding,  Sreekrishna Sankar, June 4, 2010
Product Trends/ Reviews
Global, Asia-Pacific, EMEA, Latin America, North America

Abstract

In the “new norm” of capital scarcity and increased volatility, Celent urges firms to achieve higher responsiveness to counterparty credit deterioration, attain full reuse of collateral across products, minimize overcollateralisation, and realize funding efficiencies.

The rigors of a financial crisis can significantly strengthen the resolve of collateralization efforts. Mitigating counterparty credit risk has always been a necessity, yet recent market turbulence and high-profile credit failures have given the practice new relevance and urgency. Explosive year-on-year growth in collateralized OTC transactions is testament to this.

Cubillas Ding, Research Director at Celent and coauthor of the report, notes, “Collateral management continues to be the best form of defence against an uncertain eonomic backdrop and a prime focus area since the recent financial crisis brought the need for better mitigation of counterparty risk to the fore. However, despite ongoing emphasis to retool and upgrade capabilities, there remains considerable scope for improvement in the operational and technological aspects of this process. The need for a firmwide collateral management system has become critical, in order to enable firms to achieve new levels of efficacy and responsiveness in credit risk mitigation efforts. This is especially pertinent in an environment of tight capital and an uncertain economic landscape.”

“Institutions looking to achieve best practices in collateral management have to go beyond the technological and administrative aspects of managing collateral into a highly cohesive approach to integrating collateralisation processes strategically into a firm’s trading and risk architecture. It is critical for collateral management to be transformed beyond a reactive back office activity into one that is aligned with credit risk management functions and integrated proactively into front office counterparty, pricing, and limits decisioning,” notes Sreekrishna Sankar, Analyst and coauthor of the report.

In this new report, Celent analyzes the trends and practices in the collateral management industry. It looks at how the solutions in the market are catering to client requirements as well as gaps and improvement areas for solutions. Celent looks at the best practices in the industry and compares and contrasts the various kinds of solutions in the market. The report also evaluates solutions in the market and provides pointers to firms on which solution will fit their needs best.

This study examines six vendors which deliver solutions that underpin financial firms’ efforts to raise the bar on collateralisation capabilities. The vendors analysed in detail include: Algorithmics, Lombard Risk, Misys, Rockall Technologies, Sophis, and SunGard. The report assesses the solutions based on Celent’s proprietary ABCD evaluation framework.

This report is also intended to be a guide for banks, asset managers, hedge funds, insurers, and other financial firms that are planning their credit risk and collateral management risk technology initiatives.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

6

Trends and Practices in the Market

9

Celent ABCD Analysis

21

 

ABCD Ranking at a Glance

23

Algorithmics

28

 

Product Overview

28

 

Client Information

30

 

Integration and Partnerships

30

 

Assessment of Strengths and Limitations

31

Lombard Risk

32

 

Product Overview

32

 

Client Information

34

 

Integration

35

 

Partnerships

35

 

Assessment of Strengths and Limitations

36

Misys

37

 

Product Overview

37

 

Client Information

39

 

Integration

40

 

Partnerships

40

 

Assessment of Strengths and Limitations

41

Rockall Technologies

42

 

Product Overview

42

 

Client Information

44

 

Integration

45

 

Partnerships

45

 

Assessment of Strengths and Limitations

46

Sophis

47

 

Product Overview

47

 

Client Information

49

 

Integration and Partnerships

49

 

Assessment of Strengths and Limitations

50

SunGard

51

 

Product Overview

51

 

Client Information

52

 

Integration and Partnerships

54

 

Assessment of Strengths and Limitations

55

Conclusions

57

Leveraging Celent’s Expertise

58

 

Support for Financial Institutions

58

 

Support for Vendors

58

Related Celent Research

59

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