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Insight: Maximizing returns while minimizing risk: the buy side’s path to collateral optimization
Insight: Maximizing returns while minimizing risk: the buy side’s path to collateral optimization
What is Collateral Optimization?
Collateral optimization is a strategic process that helps firms efficiently allocate assets to meet margin calls while minimizing cost and maximizing liquidity. When starting with collateral management, the primary goal is to ensure that margin calls are met and exposures are covered. However, to achieve operational efficiency, firms must advance to optimizing how they allocate their assets.
The Importance of Collateral Optimization
Liquidity &
Cost Efficiency
Maximizing the efficient use of collateral while minimizing liquidity drag is key to improving overall performance.
Ability to navigate market stress
Firms that optimize collateral reduce funding costs and strengthen liquidity buffers, improving resilience in market stress.
Free-up
cash liquidity
Industry focus on optimizing non-cash collateral, like securities & bonds, as firms aim to free up valuable cash liquidity.
Regulatory Changes
& Compliance
Firms need tools to adapt to new rules while optimizing collateral posting, cutting unnecessary costs.
Managing Counterparty Risk & Collateral Mobility
Managing counterparty risk and ensuring collateral can move efficiently is critical in a complex market with multiple counterparties and agreements.
Optimizing collateral across various agreements helps firms minimize exposure and improve operational efficiency, especially across cleared and uncleared derivatives.
Optimizing Diverse Collateral Types
Efficient cash and non-cash collateral use is increasingly essential for liquidity management.
Firms that can strategically allocate diverse asset types can free up cash, better manage liquidity, and ensure that the right assets are used to meet margin requirements at the lowest cost.
Avoid the hazards of guessing.
Get a clear view of how the cost of margin and collateral impacts your fund performance.
Meeting the rising cost of collateral
With soaring interest rates, inflation, and the cost of capital, collateral has never been more expensive.
Firms must deploy collateral efficiently to meet all trading and operational constraints, making optimization more crucial than ever.
Regulatory Pressure and Increasing Margin Requirements
Regulatory changes such as mandatory clearing and the Uncleared Margin Rules (UMR) mean that all derivative trading is collateralized for both Initial and Variation Margin.
Firms face greater operational and liquidity challenges as they strive to meet higher margin demands. Collateral optimization is now crucial to managing regulatory pressure while minimizing cost impact.
The increased demand for collateral and rising funding costs force buy-side firms to focus on managing collateral costs, liquidity, and resilience. Collateral resilience involves reducing business costs, freeing up cash and assets, and ensuring sufficient liquidity for volatile conditions.
A critical factor in this process is collateral optimization, which models the real collateral cost, counterparty eligibility, concentration limits, and internal business constraints on inventory.
Managing Collateral Costs, Liquidity and Resilience
Unlocking the Power of Collateral Optimization with Cassini
Cassini’s advanced collateral optimization capabilities empower firms to minimize collateral costs, enhance liquidity, and quickly navigate regulatory demands. By leveraging real-time analytics and intelligent asset allocation, we provide the tools to optimize collateral across all asset types and counterparties.
How we enable the world’s largest Asset Managers
Pre-check collateral eligibility against agreement schedules
Model funding cost of all collateral assets right down to each line of inventory
Monitor internal liquidity thresholds, trading desk constraints, collateral restrictions
Avoid collateral squeezes by understanding your requirements before the end-of-day
A true optimization via a global optimization algorithm that targets the minimum cost of carry
Add collateral constraints to exclude pledging specials or for reasons such as upcoming coupons
Reduce the drag on portfolio performance by optimizing the cost of funding your margin
An optimization engine that seamlessly integrates with and enhances your daily collateral workflow
Related Insights & Resources
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