30 Apr 2010, Bank of New York Mellon , Risk magazine
Whether driven by the financial crisis highlighting ineffective processes, increasing regulatory demands or the need to be more competitive, the requirement for effective trade life-cycle management, collateral management and portfolio reconciliation is now at the top of boardroom agendas the world over. More and more companies are seeing the benefit of outsourcing their derivatives functions in order to increase operational efficiency and to enable them to focus resources on their core activities.
BYN Mellon, which currently manages more than $1.5 trillion in collateral transactions every day, has helped companies across a range of asset classes to achieve greater operational efficiencies and to free up their internal resources to concentrate on strategic business development issues.
One such company was a global asset manager and plan sponsor that needed to improve its collateral management process as a result of the global financial crisis. It needed to use its independently valued trades and employ proactive, robust portfolio reconciliations. BNY Mellon was able to offer a service that was superior to the asset manager’s previous provider, especially around portfolio reconciliation. The bespoke service model that BNY Mellon assembled included a portfolio reconciliation service via its Derivatives360SM suite of products, and other customised margin management and custody services. It enabled the company to increase its reconciliation rate from around 30% to almost 100%.
“We selected BNY Mellon for this service because they offer a comprehensive solution to support our utilisation of derivatives,” said the asset manager’s vice president of operations.
For fund managers trading over-the-counter derivatives, a growing challenge over the last five to 10 years has been meeting increased collateralisation requirements. As with the asset manager example, a European investment manager found it needed to collateralise more of its derivatives exposure and could no longer rely on counterparty data and internal spreadsheets to assess daily collateral requirements for each of its credit support annexes. By early 2008, it realised that the increasing volume of administrative work and specialist tasks was taking it away from its core competency and so decided to seek out a comprehensive, automated collateral management solution.
The fund manager selected BNY Mellon due to its ability to handle a variety of complex operational and administrative tasks, as well as being able to provide a bespoke solution that included supporting a multiple legal entity structure.
“We selected BNY Mellon as our collateral management partner as the DM Edge platform is technically superior to its rivals, with good reporting functions and the general flexibility that we need,” commented the fund manager’s chief operating officer.
BNY Mellon’s latest focus has been on helping German funds manage the challenges thrown up by the liberalisation of the German investment industry. The bank’s Frankfurt operations provide German funds with tri-party collateral management, which allows the funds to take full advantage of the latest rule changes in their industry.
DWS Investments is one of BNY Mellon’s first fund clients for tri-party collateral management in Germany, with its Luxembourg funds going live on the BNY Mellon platform last year.
“After a very comprehensive selection process, we appointed BNY Mellon. Based on our good experience with the Luxembourg funds, we now look forward to expanding the service for our German funds over the course of the summer,” said Silvia Wagner, board member of DWS Holding & Service GmbH1.
The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute derivatives collateral management, or any other business or legal advice and it should not be relied upon as such.The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute derivatives collateral management, or any other business or legal advice and it should not be relied upon as such.
DWS Investments is the mutual fund arm of Deutsche Asset Management.