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What Are The Key Focus Areas In 2023 For The Margin And Collateral Industry?

February 28, 2023

Where are you focusing in 2023?

We recently conducted a LinkedIn poll asking our network to seek their input on the most significant focus areas for collateral and margin in 2023. The poll options were:

1. Pre-trade & cost analysis
2. FX Futures, OTC and Futures & Options Clearing
3. BAU & IT Process automation
4. Settlement Timings/ Costs and Fails.

We received 65 responses from a broad range of participants. Let's investigate what each area refers to through a Margin and Collateral lens and the percentage of votes received (lowest to highest).

1. Pre-trade & cost analysis: 18% of the vote & cost analysis refers to analysing the cost of trades before execution. This process is critical for institutions and hedge funds, which manage costs while executing large trade orders. 18% of respondents indicated that managing trading costs will continue to be an important area of focus. Still, it's not at the top of everyone's agenda, and many firms consider this a "nice-to-have".
At Margin Reform, we believe that understanding the cost of trading is a "must-have" if you truly want to optimise your business and execute the right trade, at the best price, with the most optimal counterparty or via the right clearing house. We work closely with several technology firms offering out-of-the-box solutions to support cost and optimisation analysis.

2. Settlement Timings/ Costs/ Fails: 22% of the vote. Settlement timings/costs/fails refer to three areas:

a. Settlement timings: How quickly can you settle an asset (collateral) after trade execution which needs margin for collateralisation?

b. Settlement costs: How much will moving assets (collateral) from one custodian to another cost? If there is a settlement failure, what is the trading, financial and client impact?
In Europe, you must be mindful of the Central Securities Depositories Regulation (CSDR), which came in last year (February 2022). Introduced by the European Union (EU) to regulate the settlement of securities trades in the region, CSDR aims to increase the safety and efficiency of securities settlement in the EU by standardising the rules and procedures that govern the operations of central securities depositories (CSDs).
c. Settlement Fails: How do you stop a technical issue or ensure that assets
(securities or cash) are available to the custodian to settle an agreed margin call?Regulations such as UMR (Uncleared Margin Rules) have prescriptive and broad eligible collateral schedules. They have also mandated the introduction of new segregated custodian models for derivatives; custodian connectivity is critical. These changes have increased failure risk for firms that are under-prepared.

22% of respondents will focus on settlement as firms process more collateral and margin movements than ever. In May 2024, the US will move to T+1 settlement; in the EU, the discussions continue across a market that is not as large or as homogenous. Automation, digitisation and streamlining of all settlement processes as firms comply with regulations, improve efficiency, and reduce costs are coming to every firm soon. At Margin Reform, we expect to see industry focus on settlements increase rapidly in 2023.

3. FX Futures, OTC and Futures & Options Clearing: 26% of the vote. FX Futures are a financial instrument used to manage currency risk. They allow investors to buy or sell a specific amount of a currency at a predetermined price and date on an exchange which is then cleared and settled via a clearing house.

26% of respondents will be focused on FX Futures, OTC and Futures & Options Clearing in 2023. The mandated clearing of derivatives was one of the key pillars of the 2009 Pittsburgh summit. Existing regulations, such as mandated clearing and UMR, have caused trading costs to increase. Brexit and new proposals in the EU like EMIR 3.0 will continue to cause market bifurcation and inefficiencies as regulators seek to make EU clearing services more resilient and attractive.

Markets evolve, and clients seek risk management with flexible execution and deep liquidity access. Products are already in the market to support them; we expect continued volume increases for cleared futures products. Firms should regularly review their clearing brokers, costs, capabilities, relationships, and venues to optimise their business.

BAU & IT Process Automation: 34% of the vote. BAU (business as usual) & IT Process Automation refers to the automation of processes across the financial services industry. The highest percentage of votes was not surprising to us. Margin and collateral domains have seen a seismic change in the last ten years. Impacted firms have hired more people (permanent staff, contractors, consultants, and lawyers), bought additional IT services, and connected to a new ecosystem consisting of multiple vendors, custodians and CCPs. Firms have an ongoing opportunity to optimise their processes, upskill their people and deliver best-in-class technology solutions.

There are five critical reasons that BAU and IT process automation remains so relevant for all institutions:

1. Cost Reduction
2. Improved Efficiency
3. Better Compliance
4. Enhanced Customer Service
5. Increased Agility

There will always be competing requirements for budget and resources. There isn’t a right or wrong answer, of course, but there should always be a minimum set of requirements such as regulatory must-haves, risk, costs, and revenue that have been calibrated to make an informed decision on how best to spend your time and money.

With that, we would like to thank you for reading, and to those who voted in our poll, thank you for taking the time to vote. If you have any questions about the results of the poll or the content of this blog, please drop our COO an email at or give us a call on +44(0)203 662 8805