Complete Collateral Portfolio Solutions - 2Q 2013
Interview with Kelly Mathieson, Global Business Executive for Collateral Management
Tell me about J.P. Morgan's enhanced collateral management offering, and why it's different from the service you've historically provided.
Mathieson: We're fortunate to be able to build on a strong platform of expertise in collateral management, in all regions and across a broad array of transactions. Our enhanced offering moves from providing settlement-related collateral services to treating collateral as a portfolio and a key part of the trading/investment decisions. This is particularly important to clients affected by global regulatory change, who are facing a more complex operating environment and a increased network of counterparties and providers. Our clients will gain a comprehensive view of all their obligations across counterparties (CCPs, brokers and bilateral relationships) and trade types (securities and derivatives) and will be able to leverage all assets available for collateral. We've leveraged our historical strengths in collateral management to allow this global service to support a broad array of transaction types and different level of a client's structure, from account level to legal entity, subject to appropriate authorizations.
Who will primarily benefit from the new offering?
Mathieson: J.P. Morgan's enhanced collateral management service benefits counterparties across the entire market – from banks and broker-dealers typically on the sell side to buy side clients such as asset managers, hedge funds, pension funds, insurance companies and corporations. Collateral management is increasingly critical as a risk management strategy for all these firms, and with greater demands on collateral, the ability to analyze, optimize and deploy it efficiently is becoming a business imperative.
How is J.P. Morgan's offering unique?
Mathieson: Our enhanced offering is unique in several ways.
- First, the traditional model of managing collateral required the collateral agent to have the underlying assets in custody. J.P. Morgan has broken through that boundary to create a collateral management service that is agnostic to custodian or clearing provider. As long as a client gives us the appropriate permission, our Virtual Global Longbox aggregates information from multiple relationships to show a single, comprehensive view of all collateral assets and obligations, regardless of counterparty, custodian or clearing bank and across all geographies.
- Second, we're going beyond margin management to provide sophisticated margin analytics to help inform trading and investing decisions. Clients will be able to assess the cost and availability of collateral, as well as collateral conditions associated with hypothetical or projected trades / investments.
- Third, advanced optimization tools will shift from a single facet, waterfall methodology that relies on counterparty and asset order requirements to a multi-factor linear algorithm that extends beyond those factors to include credit, lending / financing costs and opportunities, location and availability of collateral, and transaction settlement and costs.
- Fourth, we'll provide clients with information to support intelligent portfolio and obligation decisions, including trade-driven margin requirements and tools to help them understand the cost of collateral and associated impact on trade economics. This will help clients identify and evaluate scenarios based on sophisticated projection and simulation tools – including an understanding of assets that might be used to secure financing through repo or securities lending facilities.
- Fifth, we're supporting this with a holistic, end-to-end client service offering that gives our clients access to experts at the forefront of managing collateral and meeting regulatory requirements. J.P. Morgan's people, expertise, and service model are every bit as critical as the new technology that we've been developing.
- And finally, clients may be able to access other services from a premier global institution with a strong balance sheet and expertise across pre-trade, trade and post-trade services. This includes market leading financing capabilities, such as securities lending, that will be important for clients needing to access financing markets in the event of a collateral mismatch.
How does J.P. Morgan's solution differ from other post-trade service providers?
Mathieson: Subject to appropriate documentation, clients can use J.P. Morgan's service without having to make changes to existing custody or clearing arrangements. For clients who wish, or are required, to employ multiple custodians, they gain the flexibility of viewing all their assets and obligations in a single place, regardless of where those assets are held. And, while some post-trade services provide various components of a solution, or operate in a specific geographic market, J.P. Morgan provides a comprehensive, end-to-end global collateral management solution to support clients seeking to effectively manage their collateral in the midst of significant market changes.
Why should clients consider using J.P. Morgan as their collateral agent?
Mathieson: Clients are facing an increasingly complicated operating model, where it's more important than ever to manage collateral efficiently across all of their obligations, no matter what transaction gives rise to the need for collateral. J.P. Morgan's advanced service provides new decision making and analytic tools for managing and optimizing collateral to minimize funding costs and mitigate risk. In fact, we're the only collateral agent able to support a broad range of transaction types, globally, against all your counterparties, brokers, custodians or other providers.