Maximising Value From Collateral Management


Collateral Management has until now often been viewed as an administrative process, managed by experienced Back Office teams in isolation. However, recent changes mean firms now favour a more holistic approach that involves the entire value chain of the firm.

To achieve an efficient process that contributes positively to P&L, it is necessary to start with the Operating Model. Execution desks or portfolio managers need full transparency on trade costs to be able to make effective decisions. Collateral Management is now also optimising the long box, making the best use of available collateral and stress-testing it to document the quality. Our Axxsys Collateral Optimisation service helps firms move away from viewing collateral management as administrative only, and firmly establishes it as part of the value chain.

The wave of regulations introduced since the 2008 financial crisis, including UMR, MiFID II, FINRA 4210, Basel IV, UCITS V, and SFTR, have drastically changed the collateral landscape, particularly by increasing demand for efficient collateral management. Arguably the most notable regulation is UMR (Uncleared Margin Rules), which was implemented in phases between 2016 and 2022, which enforces variation and initial margin calculations and coverage for OTC uncleared derivatives. It is important to note that IM calculations are only applicable to firms that breach the OTC derivative AANA (Average Aggregate Notional Amount) threshold.

While firms are still adapting to these requirements, it doesn’t end there.  Inflation and increased interest rates potentially make cash collateral less cost effective, incentivizing firms to use more securities as collateral, including equities, which are typically unpopular due to their volatility and other risk factors relative to fixed income securities.

ESG is another factor that will have a significant potential impact on collateral management, as collateral eligibility criteria may become more rigid, narrowing the scope of the securities that can be collateralized.

Challenges and Things to Consider

Here are just some of the key challenges many firms are currently facing around collateral management.

  • It is becoming increasingly difficult to accurately value collateral positions.
  • Validating margin calls through independent calculations are unreliable and makes challenging them with counterparties challenging.
  • Manual processing of collateral pledges, often due to increased volumes becomes costly and takes too long.
  • Increased connectivity between platforms and parties is resulting in more complex system and technical architectures.
  • New and more complex reporting requirements are emerging.
  • New roles and responsibilities need to be filled.
  • Management of securities collateral is naturally more complex than cash.

Most legacy systems lack scalability and have restrictions that prevent firms from adapting to significant changes in the market. With our expertise and system knowledge, we can provide transparency when selecting and implementing modern high-capacity systems that allow firms to adapt to these new challenges.

Be sure to consider that a scalable collateral management system and associated workflows should have the following key attributes:

  • Automation – One of the most common requirements from clients in any domain is the automation of manual processes, and collateral management workflows are no exception. Increasing volumes of collateral and margin call processing that rely on manual approaches increase operational, credit, and counterparty risk.
  • Connectivity – Internal systems need to communicate with external parties. Stricter margin requirements result in more margin calls and collateral to settle, leading to more interaction with counterparties and custodians. Traditional email workflows and other means of communicating margin calls have become inefficient with these new demands. Additionally, tri-party workflows for collateral management have become much more prominent, requiring interfacing (typically SWIFT) between parties and the tri-party agent.
  • Control – Validation tools for margin calls have become increasingly important due to higher volumes and regulations enforcing more stringent calculations.
  • Transparency – Real-time insight into collateral movements, positions, exposure, and eligibility, can be provided through tools such as dashboards and reports, and are more important than ever before. More transparency in these workflows means quicker reaction times and better decision-making.

There are multiple systems that provide robust solutions, and we are experts in all industry-leading applications, such as SimCorp Dimension, Charles River, and BlackRock Aladdin, to name just a few.

Recent Example

 We recently worked with one of the largest 15 public pension systems in the United States implementing the SimCorp Dimension Collateral module and optimizing their collateral management operations.  Multiple key processes were enhanced: the import of counterparties’ suggested margin, securities lending & repo collateral, calculation of margin requirements in SCD and reporting of margin movements.

One notable achievement was adopting SimCorp’s standard MarginSphere interface, making them the first SimCorp Dimension client in North America to use this solution. AcadiaSoft’s platform has become the market standard for margin call management and communication.  The interface and functionality within SimCorp’s own Margin Manager provide them with a scalable and more efficient workflow, meeting their needs for automation, connectivity, control, and transparency.

Importing counterparties’ collateral values is an essential control component that enables our client to efficiently validate their internal calculations.  Figures are loaded directly to the Margin Manager workflow tool for comparison against internal calculations, providing a solid basis against which to challenge potentially incorrect margin calls from counterparties.

This client also enhanced the Repo workflows to handle the high volumes of collateral involved. Roughly 700 securities a day were being used as underlying collateral and needed to be captured and mapped to the exposure calculations.

“With Axxsys’s expert guidance implementing the SCD Collateral module, we now have all our collateral and security lending within SCD, delivering a consolidated and more accurate view of our collateral holdings in near-real-time. Axxsys also integrated SCD with Acadiasoft to enable automated collateral workflows with our counterparties which means we spend less time managing these workflows and can quickly and confidently validate counterparty margin calculations. Axxsys took the time to understand our needs and were highly agile when meeting them. We are very pleased with our continuing partnership with Axxsys.” 

– Head of Investment Accounting, Operations, and Compliance

To learn how Axxsys can help transform your business, or if you would like to hear about our client’s experience first-hand, please contact

Blog author: Frank DiCesare, Senior Manager, Axxsys Consulting