A balancing act

The collateral challenge for capital markets firms

The latest report from our Centre for Regulatory Strategy, EMEA outlines the new requirements around the exchange and holding of collateral, and sets out the best practices and advanced techniques to respond effectively to the resulting collateral management challenge.

Collateral efficiency can have a significant effect on a firm’s revenue stream and cost structure. While some in the industry, principally the largest firms, are already adopting sophisticated approaches to collateral management, others are less advanced. The new regulatory requirements will add complexity to collateral management, but through effective use of advanced strategies and by employing appropriate operating models, firms can address these challenges.

Read our report to learn more, and explore the six key collateral management strategies by expanding the table below.

Improving collateral management efficiency

Matched-book dealing

Firms often refer to a balance sheet where repos finance offsetting reverse repo agreements, as a ‘matched book’. In essence, this means a client provides a security as collateral in exchange for cash, and grants the firm the right to reuse this collateral. This strategy allows a firm to reuse existing collateral and also earn a margin.


In some cases firms can source financing for their customers internally, without the need to attract additional funding from the external money markets. Internalisation allows firms to generate additional income from finding and matching the same security among their own customers.

Market infrastructure

Market participants should scrutinise their clearing strategies alongside their CCP relationships. For instance, having fewer CCP relationships maximises multilateral netting benefits. When it comes to clearing strategies, firms have a number of options under EMIR; they can be clearing members of a CCP, direct clients of a clearing member, or establish indirect clearing arrangements.

Reducing collateral demand

Portfolio margining

Portfolio margining is the strategy whereby margin is calculated on the basis of a portfolio that consists of derivatives positions which are negatively correlated and thus offset each other. This results in lower levels of risk and thus lower required margin. This strategy can be used for both cleared and non-cleared derivative transactions.

Collateral upgrades

Collateral upgrades or collateral transformations allow firms to swap a lower quality, hard to pledge, illiquid or even non-acceptable collateral into higher quality collateral such as Treasury bonds.

Margin models

In advance of the implementation of margin requirements for non-cleared derivatives, firms should consider the methodology they will deploy to calculate initial margin. Both the US and EU frameworks give firms an option between a standard schedule specified by the regulations, and an alternative model approved by the regulator. Each option will result in different amounts of required margin.

As well as the collateral management strategies set above, the report outlines the scope of the regulatory requirements and various approaches to collateral management operating models.

About the Centre for Regulatory Strategy, EMEA

The Deloitte Centre for Regulatory Strategy is a powerful resource of information and insight, designed to assist financial institutions manage the complexity and convergence of rapidly increasing new regulation.

With regional hubs in the Americas, Asia Pacific and EMEA, the Centre combines the strength of Deloitte’s regional and international network of experienced risk, regulatory, and industry professionals – including a deep roster of former regulators, industry specialists, and business advisers – with a rich understanding of the impact of regulations on business models and strategy.

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