Digital Apps to the rescue of operational efficiency – Collateral Management

Digital Apps to the rescue of operational efficiency – Collateral Management

2021-04-20

Digital Apps to the rescue of operational efficiency – Collateral Management

Financial institutions (FIs) have invested heavily in collateral management technology during the last decade. It was driven by the regulatory push following the 2008 financial crisis and the simplification of IT legacy stacks to achieve further efficiency dictated by a New Normal of ‘how to do more with less’.

Those investments have also largely contributed to the global success of FIs collateral departments in coping with the spike of margin calls’ volumes during times of market volatility and liquidity stress caused by the Covid crisis and adapting to a new decentralized work -from everywhere at any time- model.

 

While the same drivers in technology spending remain, we have seen recently that IT decision makers in banks, brokers, buy side and propriety trading firms are progressively adopting a more strategic component-based thinking to achieve a transformative IT architecture. Typically, operational inefficiencies are addressed through non-intrusive digital apps -easy to plug in a legacy IT landscape through APIs and bringing value in short cycles.

 

The margin messaging within the collateral space, for example, has seen a wide adoption of automation within sell side banks but still suffers from a lack of standardization and relies on the manual treatment of emails within a broad number of institutions in the buy side community. These manual tasks require users to key data into their collateral systems, at both sell and buy sides of the trading relationship, causing inefficiencies, operational frictions and associated risks.

To mitigate those risks, larger sell side institutions have built internal tools to automate the process, in certain cases involving a considerable cost in building and running the applications. The need here is to consume emails, parse them and interpret the content (the email meta data: Subject, Body, attached files) to launch in real time the margin workflow, without having ‘pre-formatted’ emails.

 

This is a typical digital journey that could be addressed, at an efficient cost, through one of the components of the VERMEG digital store. It is called Email Processor (EMP) and comes with a strong business content and a simple on the fly “learning mechanism”. This digital app fits perfectly in a component-based architecture logic and can be onboarded in a quick time-to-market. It provides a dashboard to monitor the efficiency of the operational chain and to finetune the STP levels of the emails processing automation through user-friendly configuration adjustments.

On the technical side it uses key words (tokens) of the email meta data with associated respective weights to deduce the request behind each email and calls the APIs that will launch the appropriate process. Additional enhancements such as using Natural Language Programming (NLP) are planned in the roadmap to leverage new technologies to further strengthen automation capabilities.

We have seamlessly onboarded the Email Processor in COLLINE, VERMEG’s collateral management solution, to help both buy side and sell side clients get rid of residual inefficiency in the margin workflow chain. However, the use of such digital app can be extended to a wider scope within Back-Office departments whenever there are processes still relying on emails and a need to remediate operational frictions in areas like trades confirmations and matching, settlements and corporate actions management.

 

Collateral Management Solutions Director

Wassel Dammak | Collateral Management Solutions Director at VERMEG

 

 

FOLLOW US