Collateral optimisation has become a frequently discussed topic over the last few years. What has changed in聽your clients鈥櫬爋ptimisation demands聽over this period?
Marije Verhelst: Historically, collateral optimisation has always had a main objective of minimising the overall cost of funding of a firm, while securing seamless access to vital liquidity. However, the implementation of mandatory regulatory requirements like Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR), risk-weighted assets (RWA), etc. has had a significant impact on the way dealers are looking at optimisation, increasing its potential value but also making it more complex to achieve as success is dependent on more parameters and constraints than ever.
Consequently, no two clients will have exactly the same collateral optimisation objectives. This diversity necessitates extreme flexibility and modularity in all solutions, meaning that any solution must be adaptable and bespoke to individual client requirements. The ability to tailor solutions to specific needs is essential for meeting the varied demands of different clients.
Ultimately, collateral optimisation has evolved into a strategic requirement for all firms, although the strategies and approaches vary widely. It is increasingly seen as a way for firms to gain advantages over their peers in the market. By optimising collateral, firms can enhance their competitiveness, and position themselves more favourably in the industry.
Todd Hodgin: The collateral optimisation landscape has grown significantly more complex over the last several years. Our clients are pursuing various strategic objectives across a range of needs 鈥� from regulatory compliance to better capital management, liquidity preservation, funding, and operational efficiencies. They have also expressed difficulty in navigating the complexity of meeting these goals, which are created by integrating with a variety of market venues and aggregating activity across different technology stacks and data sources.
Without a single 鈥榞olden source鈥� institutions must integrate, reconcile, and make sense of fragmented information spread across many internal systems and external venues. That's where Transcend steps in.
Despite these challenges, the urgency around optimisation has never been greater. Clients are asking for real-time decision-making, cost transparency, and automated collateral mobility. In our view, firms that fail to build intelligent, dynamic optimisation frameworks risk leaving P&L on the table at best; at worst, they risk difficulty during times of extreme market volatility. At Transcend, we believe that solving these challenges requires a strategy that delivers scalable architecture, strong data governance, and workflow automation at the core.
What operational and technological challenges do firms face when implementing optimisation solutions, and how are they overcoming these?
Verhelst: When implementing optimisation solutions, firms face several operational and technological challenges. One of the primary challenges is access to data. Companies often struggle to gather the necessary data from various sources, which can hinder the optimisation process. Additionally, the quality of data is a significant concern. Poor data quality, or inconsistent data between multiple data sources, can lead to inaccurate insights and suboptimal decisions, making it crucial for firms to ensure their data is clean, consistent, and reliable.
Another challenge is the integration with new technologies or algorithms. As optimisation systems often require advanced technologies and sophisticated algorithms, firms must ensure that their existing infrastructure can support these new tools. This integration process can be complex and time-consuming, requiring significant technical expertise.
Firms also face the dilemma of whether to build or buy optimisation solutions. Building an in-house solution allows for customisation and control but requires substantial resources, expertise, and importantly, time. On the other hand, purchasing a ready-made solution can be quicker and more cost-effective but may not fully meet the specific needs of the firm.
Hodgin: The build versus buy decision is an important one. Typically, firms we engage with have a very good understanding of the value proposition of getting optimisation right. In our view, the first challenge is properly assessing what it is they are looking to achieve over both the short and long term. Can the solution scale to your aspirations across a variety of collateral obligations, whether triparty or bilateral? Is the framework flexible to allow optimisation across business drivers over time? Does the solution provide early financial and regulatory advantages, offer standard industry connectivity, and still allow my firm to tailor business drivers to fit our specific needs? Ultimately, this means developing a realistic plan for what is ideal to build and what is best to buy, and to make sure that those components can come together to deliver a scalable infrastructure.
In evaluating solutions, firms should make sure that they can meet not only the short-term requirements but also the long-term goals. For example, can your technology continue to perform as new trades flows, asset classes, business lines, or venues are added? In other words, do you need something just for a single use case, or do you need something that can grow to an enterprise-level solution? Can your technology adapt as funding policies or regulations change over time? Is it resilient in times of extreme market stress? Do you have the time and expertise to build everything you need? These are just some things to consider.
What do you see as a prerequisite for successful optimisation? What are you working on to enable this?
Verhelst: A prerequisite for successful optimisation is fundamentally about data and granularity. The efficiency of any optimisation strategy can only be as good as the quality and timeliness of the underlying data it is based upon. This includes data that Euroclear, as a triparty agent, does not necessarily have access to, such as trade-level data.
Recognising this, the first facet of our collateral optimisation roadmap is to invest in our data. We are committed to providing our clients with access to the highest standards of data quality and availability, which is key to making the right optimisation-driven decisions.
To address data that we may not have access to today, we are actively working on modernising our data structures within Euroclear to allow for both internal and, just as importantly, external data sources to be fed into, and consumed by, our triparty platform. We have already proven this data approach through connectivity to external data feeds, such as ESG indices. However, our ambition goes way beyond this, and we intend to keep increasing the flexibility of our platform when it comes to data, aiming to become a gold-standard data source.
Once all of this is in place, it is essential to have an intelligent algorithm to process all the data and provide meaningful conclusions, resulting in effective actions based on these insights. This is where our partnership with Transcend comes into play. Euroclear鈥檚 reliable data, powered by Transcend's intelligent algorithms, ensures that we provide our clients with a one-stop solution for valuable and efficient collateral optimisation.聽
Hodgin: The first step to success is often to focus the programme on the areas that differentiate your firm and create a solution that can enable that vision. Firms we have partnered with turn to Transcend for its proven industry connectivity, a robust framework to optimise across diverse use cases 鈥� including LCR, NSR, and capital 鈥� and hard-earned experience from implementing solutions in real-world business processes. This has allowed those firms to focus on identifying key business drivers and configuring scenarios that deliver value.
Equally important is the flexibility and robustness of the optimisation engine itself. Markets are dynamic, and so optimisation strategies must be adaptive. Optimisation engines must be built to be both comprehensive and configurable, enabling firms to define and evolve rules, constraints, and objectives as business needs and regulatory landscapes shift or periods of market volatility. Whether prioritising cost, risk, or capital requirements, our algorithmic framework can support nuanced collateral needs and adjust in real time to market conditions or stress scenarios.
Firms empowered with a modular, intelligent infrastructure that not only solves today鈥檚 challenges but is ready for tomorrow鈥檚 complexity is a real advantage. By bringing together powerful data integration and a flexible optimisation core, Transcend helps institutions stay ahead 鈥� and turn complexity into a strategic advantage by connecting the dots across data silos and turn disjointed processes into streamlined, informed and intelligent business process.
Why do you think Transcend makes a good partner for Euroclear?
Hodgin: Euroclear has been a leading triparty agent for decades and Euroclear Collateral Highway has scalability and stability on its side. Euroclear Collateral Highway has much of the data required to provide holistic optimisation solutions for its clients.
Transcend, in turn, has best-in-class capabilities around turning this data into optimisation parameters and executing collateral allocation seamlessly across complex operational and settlement ecosystems. Importantly, Transcend is also able to integrate with multiple sources of data, including direct trading data from the organisations themselves,聽and a more complete data model.
At Transcend, we bring not only a flexible and interoperable technology stack but also years of experience solving collateral and liquidity optimisation challenges across the world鈥檚 leading financial institutions. Our platform is designed to integrate seamlessly with existing infrastructure, unlocking front-to-back connectivity, data transparency, and automation that would take years to build internally.
By partnering with Euroclear, we can together offer a reliable, scalable solution to the market that combines Euroclear鈥檚 proven track record as a triparty agent with Transcend鈥檚 optimisation expertise.
Verhelst: Transcend makes an excellent partner for Euroclear because by integrating Transcend鈥檚 expertise in collateral optimisation algorithms with Euroclear鈥檚 Triparty solutions, we can offer our clients a fully flexible and scalable state-of-the-art collateral optimisation solution with a short time to market. This collaboration will enable us to realise our ambition to become the industry benchmark for collateral allocation and optimisation. This partnership will allow our clients to achieve their bespoke objectives without incurring the integration, connectivity, and development costs associated with building an in-house solution, ultimately enabling all of our clients access to a powerful collateral optimiser.
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