At VERMEG we believe that optimisation solutions should be tailored to different market sectors. Different organisations have varied drivers and priorities depending upon their size, their strategy and the legality of pooling assets across multiple entities or funds. Each organisation must set its own goals in relation to what it wishes to accomplish, whether this is the maximising of efficiencies, increase in savings or the drive for revenue opportunities.

To some extent this has been driven by the pressure of evolving regulatory requirements which demand that institutions should be able to demonstrate the existence of strong and efficient technology and process. Liquidity, capital and regulatory changes are demanding more effective management, exposures and availability. The Basel III rules require banks to hold more capital, reduce leverage and maintain their liquidity coverage ratios.

From the collateral perspective, decisions must be made as to whether to clear a trade on a CCP or continue to execute bilaterally. This means consideration must be given as to who to trade with and the associated costs that apply. Since 2016 the Dodd Frank & EMIR regulations have created increased demand for HQLA and every organisation will look for « cheapest to deliver » when pledging assets but also factors should also be considered. Substitution costs, hardest to place/borrow, eligibility criteria and internal strategies must also be considered along with accessibility and movement of assets across jurisdictions. This leads firms to review whether they have accurate visibility of what assets they can access across business lines – Repo, OTC, Cleared, ETD, Sec Lending etc – often this information remains siloed.

With the spread of collateral focus from back to front office platforms must be able to meet different functional needs. A front office team will require a different view from the back office over what is essentially the same data. As the drive for reduced costs and increased revenue continues, front office decision making becomes more important, weighing the need for regulatory capital against the pledging of assets. The drive for trade optimisation, « what if » scenario analysis & pre trade analytics has become imperative.

Recently we’ve seen huge increases in margin call volumes as the world reacts to market volatility as a result of COVID-19. Pressure on operational teams is greater than ever as they race to meet the margin calls and allocate collateral appropriately. Increased loads on Infrastructure and connectivity to both up and downstream systems has caused some systems to falter. Now, more than ever, trust that a platform is reliable and will provide appropriate results is paramount.

The ultimate challenge for a vendor is to develop a solution that is fit for all users across all products, agreements, markets and jurisdictions. All too frequently existing technology infrastructures find it difficult to adapt to rapidly evolving market pressures and regulatory requirements but contrary to popular opinion, it may not always be necessary to do away with incumbent systems entirely. Integration with systems that are capable of looking across as well as withing product silos can provide the flexibility and additional functionality with reduced impact.

Often we are asked… does one size fit all?

At VERMEG, our approach has been to provide a modular, rule-based solution enabling each client to define their goals cross asset, cross jurisdiction with a number of algorithms available to assist with decision making. Thus, providing consistency of user experience, ease of implementation and upgrade but enabling clients to flex the parameters, define their own rules and workflows to adapt and meet individual requirements.

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