ISDA offers market prospects for optimizing collateral – Finance and Banking


United States: ISDA offers market prospects for optimizing collateral

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In “A Collection of Essays Focused on Collateral Optimization in the OTC Derivatives Market”, the ISDA shared its perspectives on the basis of interviews with market participants on the buy and sell side.

ISDA determined that efficient management and clear key figures are key factors for optimizing collateral. The ISDA found that one of the main differences between buy-side and sell-side firms in terms of optimization is that (i) buy-side firms have regulatory barriers that make collateral optimization efforts difficult, and (ii) sell-side firms have a holistic view of collateral. ISDA emphasized the critical role of tri-party providers in streamlining transactions.

The parties noted rising operating costs associated with a steadily increasing demand for collateral in the derivatives market. Problems that supposedly exacerbated this increase included (i) a lack of data transparency, (ii) inadequate internal structures to meet the need for clearer communication, and (iii) burdensome regulatory requirements. The ISDA found that while advances in technology partially mitigated these issues, data standardization has emerged as a potential step toward more efficient processes and greater security optimization.

Primary sources

  1. ISDA Paper: Demystifying Collateral Optimization – A collection of essays on collateral optimization in the OTC derivatives market

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