A study by Finadium suggests there is nothing precluding regional financial institutions from launching TPAs of their own on the condition that they can find economies of scale for their clients. The Finadium study also found that  SIX now controls 1.1% of the USD 6.15 trillion triparty repo market, rising to 2% if North America is excluded.

Twelve months of growth
Raphael Heuberger, Head Business Development at SIX, explained how the company’s new TPA platform with its Collateral Cockpit™ user interface went live in 2020, predominantly targeting tier-two banks and brokers together with insurance companies and buy-side institutions. He went on to discuss how the TPA’s ability to automate collateral management processes and its general ease of use had been instrumental in winning mandates over the last twelve months.

“We have automated the approach for allocating collateral, so that users can structure the priorities behind their collateral allocations and decide which assets they want to choose first and last. The tool also eliminates a number of the cumbersome and manual back-office processes, helping users build up economies of scale,” he said. Heuberger noted that SIX Securities Services is learning from the retail sector and making its TPA solution as user-friendly as possible.

This growth has coincided with a period of unprecedented volatility in repo markets. During the peak of the COVID-19 disruption, investors and asset managers were forced to seek out funding as they looked to provide cash to satisfy redemption requests and meet the increased cash collateral demands from CCPs (central counterparty clearing houses) on their OTC derivative positions. 

Delivering operational efficiencies
These operational efficiencies from TPA come at a time when the industry is facing a number of cost challenges, said Heuberger. Equity market volatility and low yields have made it harder for institutions to etch out performance. The declining revenues are causing widespread problems for the industry, especially as operating and regulatory costs are rising, while underlying clients continue to apply pressure on fees.

Changing with the times
In order to thrive moving forward, providers will need to innovate so that they can support clients’ evolving requirements. Looking ahead, Heuberger said that SIX Securities Services is exploring how distributed ledger technology (DLT) could be leveraged to drive further efficiencies in the repo market. He also added that research was currently underway into whether digital assets such as tokenized securities could be used for collateral purposes.

Markets are showing signs of recovery, but this recovery will be a multi-year event. Organizations will need to identify operational efficiencies and collateral management is one area where this can be realized. Providers such as SIX Securities Services continue to play a vital role in helping the industry optimize its operational processes.