Another shot across the bow is coming for data silos. Recently, I noted that FATCA compliance and automated reconciliation could eliminate some data silos or cause firms to find ways to access previously unavailable data. The New Age of Collateral Management is clearly another ally—maybe the strongest one—in the war against data silos.Data management issues were cited as the key IT challenge at a panel discussion yesterday that was part of FTF’s “Collateral Management Breakfast” conference on the brave new world collateral management. Some of the major drivers for improved collateral management cited by panelists are the overhaul of over-the-counter (OTC) derivatives, new rules and regulations governing margining and collateral, more regulatory reporting, the move toward faster settlement cycles, new calls for straight through processing (STP), and the inevitable disputes firms will be having over the forthcoming, complex collateralization practices.
These issues are drawing collateral management issues out of the back office, which now may have to offer real-time updates on the status of collateral, clearing, margining and accounting issues. This implies that new collateral management links will emerge among front and middle office functions, treasury, overall liquidity management, and supportive financing—just to name a few.
These new pressures for an interdependent sharing of data means that key areas of information can no longer be hoarded by groups within a firm. In fact, the data for important collateral, margining and capital management functions has to be found and then aggregated. There also have to be ways to mine the data for real-time pricing issues and STP. Strategies also have to be developed to stay on top of the ever-increasing volumes of relevant data.
The hope is that data aggregation from all the right areas will give firms the holistic view they will need to facilitate the collateral needs of an increasingly complex array of instruments. For instance, one panelist says that his firm needs new collateral management strategies for cleared and executed OTC instruments, uncleared instruments, listed derivatives, reporting to repositories and repo financing. The firm is using multiple platforms to handle these clearing and collateral demands but would prefer a one-size fits all approach for the sake of streamlining, if nothing else.
Another panelist outlined the process that generally happens when firms need to create new data life-lines for collateral. Firms should:
- Somehow coalesce the applications needed to support collateral and liquidity management;
- Create a data transport layer;
- And develop a means for flexible reporting that will build upon facilities for more data transparency.
Greater data access and transparency will also help streamline the process for identifying transactions. In some cases, there are five or six ways of identifying a transaction generally because of the various identification methods used by vendors. (The Legal Entity Identifier (LEI) push may help here.) Getting the data management correct is also extremely helpful as the data demands of cleared and uncleared derivatives are very different, a panelist says.
Ultimately, there will be many ways of getting from a siloed data situation to the goal of commingled data that would go a long way toward greater operational efficiency. The IT advantages of breaking down data silos have been clear for a long while. Yet many firms have not had the political will to tear them down.
I hope that this situation is changing as firms could pay a heavy price for poor collateral management especially if a business group withholds key data mostly because of political reasons and turf battles. My guess is that few executives in this climate would tolerate such behavior.
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