Collateral Guide 2023 - Data developments

Data standardisation, optimisation and centralisation remain a key focus for industry associations as they seek to promote automation.

This Thought Leadership article is part of the Collateral Management, 2023 edition,which can be accessed here.

ISLA, the International Capital Market Association (ICMA) and the International Swaps and Derivatives Association (ISDA) recently announced the appointment of Finos to provide a repository with a view to fostering the growth of an open-source community for the common domain model or CDM.

Open-source CDM establishes a single, common digital representation of trade events and actions across the lifecycle of financial products.

The associations will announce once migration is complete and describe how institutions can contribute when it occurs. Contributions are encouraged by either contacting the associations or visiting the portal website.

The ISDA CDM is providing useful standardisation, enabling firms to focus on how they can automate without the overhead of large data translation projects says Trevor Negus, senior product manager at SmartStream.

He makes the point that optimisation through portfolio rebalancing will by its nature drive up collateral substitution volumes. “Firms need to automate the communication of these events,” he adds. “As with margin calls, electronic messaging of substitutions will become essential to keeping processing costs down.”

Securities reference data and eligibility parameters have a symbiotic relationship with optimisation criteria such as the source of the collateral or proposed use in terms of trading activity. Both sets of data need to be effective and transmitted between systems and actors within the collateral ecosystem in an automated, scalable and standardised fashion.

“This has been a progression over many years with iterative developments and in recent years we have seen far greater integration between collateral managers, clients and vendors as a result,” says Graham Gooden, head of collateral services product and strategy for EMEA at J.P. Morgan.

Within the world of equity finance, all market participants have their own data structures and models. There are various industry initiatives underway to standardise data - such as ISLA’s CDM initiative – but Bimal Kadikar, founder and CEO Transcend, observes that it is not enough to standardise data across just equity finance, for example.

“It has to be comparable across repo, OTC derivatives and cleared derivatives,” he says. “Even within cleared derivatives, all the CCPs have their own ways of doing things so there are lots of challenges. Our focus is on creating a harmonised ecosystem that cuts across all business areas and supports improved visibility, connectivity aggregation and analytics on a front to back basis.”

When this topic is discussed the focus is often on trade, position or settlement data adds BJ Marcoullier, head of sales at Transcend. “However, eligibility is also very important and that covers issues such as legal agreements and collateral schedules,” he says.