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Creating Advantages For Your Company With Collateral Management Services

19 October 2017 No Comment

Profits in the finance sector aren’t as easy to create as they were a few years ago. The low interest rate environment that we all have to work in isn’t conducive to making outsized gains, and with all the new regulations, many firms are struggling to maintain their current margins. The recent judgment agasint JP Morgan in Texas shows just how important choosing the right financial partner really is, and this means finding the right firm for your collateral management needs.

The regulatory environment is getting more complex all the time, and if your company has to deal with trades in the US, EU and Asia, there are a lot of new regulations that make a big difference. In the wake of the 2008 subprime crisis, a lot of dark corners of the financial world got exposed to the light of government regulation. Today there are more regulations in the derivative market than ever before, and Brussels may roll new rules out at any time.

Investment banks aren’t a bad choice when it comes to contracting financial services, but today there are other players in the derivatives market. Clearing houses have long been a repository of specialist market knowledge, but today they are taking over some of the functions that investment banks have done in the past. Among these is managing complex trade settlements, and making sure their clients comply with regulations that aren’t always easy to understand.

Advantages For Today

One of the big changes that has taken place over the last decade is the movement towards centralizing clearing services for a number of securities, and derivatives. This means that market liquidity is more often found near the center of the financial markets, and if your company wants to find the best rates, it makes sense to have the most options possible. Investment banks may be known for their market savvy, but one look over the last decade will show you how often they play favorites, and don’t give smaller clients a fair shake.

Thankfully today your company has a range of choices for collateral management services, and your options are much larger than investment banks, and the major money center banks. There isn’t going to be a right choice for every company, but it is important to be aware of all the options that are out there. Clearing houses do have the advantage of an intimate knowledge of all relevant regulations, with a necessity of staying up on the ever changing liquidity environment.

Smaller firms that simply don’t have the money to devote to a proprietary collateral management department can take advantage of a clearing house for financial services, and never have to worry that their positions are being compromised to accommodate a larger client of the same institution. This is a large advantage, especially in a market that is dependent on smaller and smaller operational margins.

Staying In The Black

Don’t think for a second that any company has an easy time keeping up with the regulations that are being phased in over the next few years. In fact, many mid sized firms have difficulty figuring out how to comply with the new regulations, and ensure they aren’t making costly mistakes. There really isn’t any reason to put your company in jeopardy, or risk fines or worse. We know for certain that Basil III is here to stay, though there could be more regulations in the pipeline anytime.

Here in Europe the situation is even more complex, but the good news is that clearing houses are at the center of the solution. Today as liquidity is moving into ever greater concentrations, clearing houses are beginning to offer comprehensive collateral management solutions for companies of any size. If your company is struggling to keep up with all the changes that are taking place, it is a wise idea to reach out for help.

In addition to making sure your trading activities are done in full compliance with all extant regulations, subcontracting your collateral management services can give your company much greater operational flexibility!

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