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Sep 24, 2020

Pirum Collateral Management and UMR

“Who controls the past controls the future; who controls the present controls the past,” George Orwell, 1984

While Orwell wrote the above as a warning about propaganda, it applies in many ways to the challenges of collateral management in the UMR world.

As Head of Client Innovation at Pirum Systems I spend much of my time talking to our clients and understanding their pain to help design new solutions. 

When I talk to collateral managers in the OTC Derivatives space I’m often told “every vendor wants to talk about a future state of collateral, but my #1 problem right now is that I don’t have visibility across my triparty long-boxes or know what I should pledge where. This is costing me money, can you help me with that? I have to fix what I’m doing today before I start worrying about tomorrow”.   

Another swap dealer summed up the problem to me as: “I really need to know when I have cheap to finance assets sat in a longbox at triparty A which I could use at triparty B to free up something more expensive.”

In other words, I can’t control the present so how can I control the future?

Triparty collateral management is staggeringly effective at maximising the efficient usage of your unencumbered assets, but that efficiency drops off quickly if you use more than one triparty agent. The nature of UMR, however, means that most firms in scope are already pledging margin across multiple triparty agents, many are using all 4 and the number of collateral venues will only increase over the next 2 years with the later stages of UMR. 

A study by Deloitte found that “a 1% increase in collateral efficiency could result in approximately $1.2m additional revenue per billion units of collateral for an investment bank with a collateral surplus” so the upside to your firm if you get it right is significant.  

What does this mean in practice, surely even the most basic collateral platform can identify the cheapest assets to deliver to satisfy a margin call? Yes, but the problem is more complex than identifying where you can use securities, it’s about community as much as it is about technology.

For close to a decade the name Pirum has been synonymous with the management of triparty collateral agents in the securities finance world and each day around $1.4tn of triparty collateral is instructed by Pirum to the 4 triparty agents.

Relying on end of day reporting or ad-hoc logins to the triparty web-portals means it’s often too late to do anything, by the time you’ve seen a complete picture the positions have moved on. Technology can speed up the data gathering, but harmonising across multiple collateral venues needs much more

Pirum’s triparty collateral community provides clients with not only a way to send RQVs and see end of day positions but has 2-way real-time links to every triparty agent, everything coming together in a single modern web based platform. Pirum models every collateral account with eligibility, rules, limits, allocated collateral and exposures all captured and constantly updating.

What is the benefit of our community to our clients? Imagine seeing that you’re short at triparty A but have surplus eligible assets at triparty B you could use without having to source new inventory. Or maybe by using assets currently pledged at triparty C in an account at triparty D they would have a lower haircut so go further. This increases efficiency of your triparty agents, saving you cost or even generating revenue in some cases.

The triparty community at Pirum allows our clients to control today but what happens tomorrow? That’s what I’m talking to our clients about, the next generation of collateral management at Pirum is an exciting place to be. Join the Pirum community and watch this space!

Perhaps if Orwell was a collateral manager he would have written it as “When you control today you can control tomorrow”? Something to think about during lockdown that’s for certain. 

Todd Crowther
Head of Client Innovation – – +44 20 7220 0968