Major European players are reorganising their collateral management businesses in light of regulatory pressure and the move to non-cash collateral, according to panellists on the first afternoon discussion.

Arne Theia, head of repo and collateral trading at UniCredit, pointed out that firms had already put much effort into reorganising collateral management following regulatory changes as well as the move to Target2-Securities (T2S). Oliver Deutscher, head of collateral trading at DZ Bank, said the reshuffle of his business had already taken around five years.

“In the context on collateralising all trades the aim is to move our client base to non-cash but that depends on risk mitigation tools and whether what we get to accept as collateral is of value,” he added. Panellists also recognised the importance of tri-party solutions and collaboration between equity and repo desks in achieving efficient collateral management.

“There is an increased collaboration between equity desks and repo desks as they are making use of collateral upgrade and collateral transformation trades,” said Commerzbank collateral and liquidity trading director Glen Stone.

There is a “disconnect” between market experts and regulators when considering the nature of collateral in securities finance transactions, according to Deutscher. Regulators are keen for the market to move to non-cash collateral, but he said he still supported cash collateral. “Cash is the best risk mitigation tool in securities financing transactions and repo market,” he said.

“The move from cash to non-cash collateral is very specific and needs to be differentiated. We have seen shifts of asset classes, which are no longer tradeable.”

Banks prefer cash collateral as it is more liquid and can be reinvested easily compared to non-cash collateral. Commerzbank’s Stone said regulatory pressures made it costlier for his organisation to use equity collateral than fixed income collateral.

“Resource has become an issue as a result of regulatory pressures. On the equity desk it is already expensive as traders are increasingly aware of liquidity consumption costs and balance sheets,” he said.