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Research reveals gap between collateral management experts and IT decision-makers.
Findings from a pan-European research study indicates that the two groups fail to see eye-to-eye on issues such as the price of collateral, HQLA shortfall, and future challenges for the collateral management industry.
An industry-wide European study from SIX Securities Services revealed the differing opinions between IT decision-makers and collateral management experts on a range of key issues. This split is most evident when it comes to views on the availability of high-quality liquid assets (HQLA).
The vast majority (83%) of collateral management experts think that there is a shortfall, while only 47% of IT decision-makers agreed. 63% of collateral management experts went so far as to say that there is a significant shortfall, while only 17% of IT decision-makers hold this view. The discrepancy between the two is more apparent within sell-side organizations, where there is a 47% difference on the issue compared to a 17% difference in buy-side organizations.
Differing opinions between the two areas of specialization also extend to views on the quality of collateral: 53% of IT decision-makers believe that it is acceptable for collateral to be low quality, complex, and opaque, so long as it is cheap, whereas only 30% of collateral management experts have this view.
By contrast, almost two thirds (60%) of collateral management experts believe that collateral must be simple, high quality, liquid and easy to value. Only 13% of IT decision-makers agree that it needs to be simple, while 33% believe that the cost of collateral is “the only thing that matters”. While collateral management experts are likely to have a deeper understanding as to the requirements of collateral, the level of disparity between the two is cause for industry concern, particularly in terms of future challenges.
57% of IT decision-makers think that the biggest collateral optimization challenge for the future is in fact low-quality collateral. The biggest concern for collateral management experts (70%), however, is that with the cost of lending and borrowing increasing, it will make the cost of collateralizing OTC trades too expensive to make the trading activity viable.
About the research
The study surveyed 60 professionals in the UK, Germany, France, the Nordics and Switzerland. 30 respondents were IT decision-makers and 30 collateral management experts from buy-side and sell-side financial services institutions. The number of respondents from buy-side and sell-side organizations was evenly split with 30 respondents from each. The average value of respondents’ organizations’ assets under management was USD 323 billion.