The 10-year view: Collateral in 2030

The 10-year view: Collateral in 2030

As part of its Collateral in 2020 special report, Global Investor asked industry participants what they believe the collateral ecosystem might look like in 2030 and to what extent they expect emerging technologies to be embedded within it.

Scott Lucas, head of firmwide intraday liquidity at J.P. Morgan: “My hope is that we’d be able to move collateral through the market place in a frictionless way that supports liquidity and capital market flows in a more efficient manner. Whether that’s through a full change to market infrastructure or whether it’s via another layer that supplements the existing, capable processes that we have in place today remains to be seen. Targeted solutions to specific problems have now gained momentum, and it will take a little while to roll these out in the market, but if we’re not well on the path to a more efficient multi-market, multi-asset class settlement process by 2030 then we would have missed an opportunity.” 

Matt Wolfe, vice president of strategic planning and development at OCC: “One of the most powerful things that DLT and smart contracts can bring is a greater level of automation, for example, in the event of a change to the security you could have automatic adjustments occurring which would allow for the broader use of different types of assets, outside of even the typical securities we see today. I think that we will see digitised securities, such as universal settlement coins or tokens, at some point by 2030. You could imagine a scenario where mark to market is occurring every five minutes instead of once a day because it’s so easy to transfer these securities automatically using smart contracts. However, tokenised securities is an area where regulatory guidance is needed, there has to be the right set of governance around it, and it should be done in a way that doesn’t bifurcate the liquidity that we have in the marketplace today.”

Berta Ares, managing director at BME Inntech: “Collateral management is a complex issue and needs are very different depending on the profile of each participant. As a market infrastructure provider, BME is very much involved with the first layer of collateral management linked to liquidity and treasury management processes in the financial industry. In this context, we believe that the trend will continue to be led by market infrastructures in a relatively centralised way with a methodical introduction of new technologies but ensuring that control and trust is maintained in neutral central infrastructures. However, in the next layers of collateral management it is much more atomized and the number of providers is much broader. This has always been an effervescent field for innovation and regulation is also less constraining than it is for market infrastructures, and we therefore expect a faster level of adoption of new technologies.”  

Phil Morgan, chief operating officer at Pirum Systems: “The pace of technological change in the 21st century is unprecedented. Thirty years ago, the widespread adoption of the internet coupled with smartphone technology would have been hard to imagine. In some ways and often for good reasons the securities finance technology has yet to mirror such acceleration. At Pirum we remain committed to assisting the industry achieve its automation goals for 2030 and wherever possible will do so in a collaborative and non-disruptive manner.” 

Bimal Kadikar, chief executive officer at Transcend: “By 2030, more than 90% of all collateral and funding decisions are going to be made by machines. Automation is going to be the fundamental driver in our industry and where it will be really important is not just decision-making, but the ability to act on that decision in a seamless way. This frictionless movement of collateral is the end-state that the industry is looking for.” 

Guido Stroemer, co-founder and chief executive officer at HQLAX: “My forward-looking view is one in which depositories for a multitude of asset classes located across the global jurisdictional landscape are connected by an interoperable network of digital registries, which together facilitate seamless ownership transfers, not only for cash and securities, but also for other asset classes such as commodities and precious metals.” 

Robert Frost, head of product development at Pirum Systems: “The ecosystem is going to be much more complex – more products, more counterparties, more venues, more regulations – but standardised, automated technology should make the process of managing that growing spider web of complexity much easier. Everything will be much more automated. You should be able to move assets and check collateral eligibility, for example, at the touch of a button. Whether that’s achieved through emerging technologies or existing technologies, that’s ultimately where the industry needs to get to.” 

Carrie Osman, founder and chief executive officer at Cruxy & Company: “Where the market sees the collateral ecosystem moving to, even before 2030, is one where counterparties are able to move assets across different custodians seamlessly. The user-experience and interaction of facilitating that will be user-friendly and frictionless. Speed to clearing and settlement will have no errors and will happen in real time, meaning zero-touch on-boarding, auto-instructing movement of the long-box and firms having one view of their collateral globally. All of these could be enabled by DLT and tokenisation.” 

Download the full Collateral in 2020 Guide here.

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