Collateral optimization is profoundly changing the way that the front, middle and back offices are interacting and for good reason, says Diana Shapiro, NAM head of collateral services at Citi, who spoke to FTF News during the DerivOps North America 2019 conference.
“Historically, firms have looked at collateral optimization as a very specific point in time, i.e.: ‘What do I post to meet my margin call, right now?’ But, in actuality, when you’re looking at different drag factors, it can happen at all different points in time of the derivatives life cycle,” Shapiro says.
“Since the financial crisis, regulators have really sought to mitigate counterparty credit risk and any widespread contagion risk. And they’ve done that through passing a slew of various regulations, which effectively have required clients to post more margin more frequently, in larger amounts, than ever before,” Shapiro adds. “At the same time, we’re starting to see interest rates rise — which, potentially, that trend could continue, which makes collateral more expensive to post — and a lot of firms are being faced with fee compression. So, what does that mean? That means collateral optimization is extremely important. So, firms are really looking to bring different parts of the organization together to try to examine what those drag factors are and mitigate them where possible.”
In addition to the video interview, Shapiro was a panelist in “The New Rules of Collateral Optimization” session at DerivOps, which took place in Chicago.
Click on the image above to watch the entire interview.
CREDITS:
Video Production: videography by Sean O’Connor Video Productions and video editing by Janene Knox
Interview conducted by Eugene Grygo, chief content officer, FTF News
Co-Producers: Sarah Hathaway, vice president, Financial Technologies Forum (FTF) and Eugene Grygo