Most (70%) financial service providers consider collateral transformation, where one type of collateral is substituted for another via a series of repo or securities lending arrangements, is high on their agenda, according to a Euroclear survey of 20 firms.

Accordingly, firms are looking to tap global pools to manage their immediate liquidity challenges and intra-day credit needs. Having a single global view of their inventory remains the ‘Holy Grail’ for marketplace participants.

Stronger and more numerous relationships among triparty repo participants will be key in the coming years, with related activity between European firms and non-European counterparties doubling from 17.5% in 2001 to 34% in December 2014.

“This timely research underscores our belief that market dynamics and regulatory changes are propelling collateral management issues to the forefront of both financial and non-financial firms, in a major way," said Jo Van de Velde, managing director and head of product management at Euroclear. 

"Many industry experts argue that collateral has become a new currency, as firms look to shore-up credit exposures from a variety of different activities while grappling with increased balance sheet pressures. Remaining competitive in today’s markets involves facilitating the use of expert, open architecture providers; ones with the critical mass of asset pools and counterparties, as well as with a global reach.”

Based on interviews with respondents from 20 firms, comprising brokers, banks, asset managers, pension funds and corporates, the research showcases major areas for industry action as the markets continue to grapple with the impact of quantitative easing, among other things, on the available supply of high-quality liquid assets.

The challenge of collateral mobility was reported as a concern by 35% of respondents, along with pricing assets.

A quarter of respondents said that the need for standards is ever-pressing, and this is driving the focus on collateral resourcing and optimisation.

A third (30%) of respondents lack an optimisation strategy.

Moreover, with over-the-counter derivatives moving into a cleared environment, the increase in daily and intraday margin calls will demand even more robust collateral management strategies among participants.

“Regulatory reform is a driving force behind firms’ current re-evaluation of their collateral management capabilities," said Virginie O’Shea, senior analyst at Aite Group, which conducted the study. 

"Emir is heightening the need for a more proactive approach to collateral, on a more frequent basis. Assets must be quickly identified and seamlessly transported to where they are required. This is a significant challenge, given the internal and external inefficiencies that must be overcome, and something that they are unlikely to be able to tackle on their own. 

"One thing is sure, firms are looking to gain an aggregate view of their collateral inventory in order to set the groundwork for optimisation. It is early days for some firms in this regard, but what is certain is that the front office is taking a much more active role overall.”