NeMa 2016 pre-event synopsis
How Is the Broker Dealer Segment Approaching T2S from A Collateral Management & Refinancing Position?
“How Is the Broker Dealer Segment Approaching T2S from A Collateral Management & Refinancing Position?” is one of the questions being put to panelists at this year’s NeMa. Moderated by Bob Currie, independent journalist and copywriter, the session will seek to look beyond the ‘impacts of T2S on settlement costs’ or ‘succeeding in migrating to T2S’ themes. The panel will examine how brokers will integrate T2S as part of their collateral management strategy and fit in with constraints ranging from the regulatory aspects – ‘too big to fail’, Basle III,… - to the complexities of internal organizations – an area under which comes the question “who will pay?” for the cost of liquidity under the twin effects of increasingly unbundled pricing at agents and consolidated management of collateral pools. The panel will also examine which models are available in the market and best suited to a deeply changed post financial crisis regulatory environment.
For panelist, Hugh Palmer, T2S Product Manager for Financial Institutions & Brokers at SGSS, who will be providing insight from a post-trade services provider viewpoint, there is not a “one size fits all” response given that the term ‘broker’ ranges from smaller third-party execution outfits to the tier 1 investment banks.
“SGSS acting as a general clearing member (through its clearing subsidiary, Parel) is servicing a number of medium and larger brokers that can be qualified as “pure players” i.e., they are not part of a larger Investment Banking business. For such clients, the question is not so much how they can manage their collateral in T2S – as generally they don’t have any of their own - but more how their agent can best optimize its collateral so as to increase the supply of intraday liquidity to the brokers that they can then leverage to increase their volumes.” Hugh adds that “such clients also expect that more integrated financial markets will increase opportunities for cross-margining to reduce their daily net requirements. SGSS’ role is to help make this possible by leveraging interoperability and an increasingly open architecture in the market - architecture to which T2S contributes.”
“The investment banks have different challenges which are largely centered on how their organization should adapt to conflicting pressures to segregate their business into less systemically important chunks on one hand, whilst looking to develop their businesses and reduce costs through increased internal synergies, and a greater level of outsourced non core functions on the other,” notes Hugh.
Within Societe Generale’s Global Banking & Investor Solutions division, for example, SGSS and SG CIB have developed a response strategy for the post-trade component that is now going into execution. This strategy clearly leverages the “single market” vision of T2S not only for market access through a single hub but also with regards to pooling liquidity in one place and in central bank money. This combined approach is expected to deliver significant benefits.
An audience poll on the question of what they think will be the biggest and most rewarding challenge for their firms and the industry in the next 3 – 5 years will confirm whether or not if T2S is still high on the industry’s agenda. For certain there are other big and possibly disruptive subjects on the horizon – blockchain and distributed ledger technology to name but one. However, nine years since the launch of the project, T2S is now on our doorsteps. SGSS remains committed to delivering innovative solutions that help its clients go beyond transition to enact transformation, which will include tackling collateral management and refinancing, and reach their unique objectives in tomorrow’s world.