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Article: MF Global Failure and the Benefit of Integrated Collateral Management | 4sight.com

05 April 2013 | Bill Hodgson

Some interesting analysis on the demise of MF Global: http://dealbreaker.com/2013/04/mf-global-report-shows-limits-of-the-just-write-all-your-positions-on-post-its-method-of-risk-management/ The article suggests that MF Global had trouble meeting margin calls on its repo to maturity funding for its peripheral Euro sovereign bond portfolio and that:

“Unlike other financial institutions, the Company did not have a collateral management database to guide Treasury and Operations Department staff on which securities could be pledged to satisfy the conditions of the repo financing agreements. It also did not have a system that automatically identified which customer securities could be pledged. Instead, the Company would select collateral manually, enter the CUSIP numbers for the securities directly into the clearing bank’s technology platform, and then learn post-allocation whether the collateral selected was acceptable under the terms of the relevant agreements.”

This highlights the growing importance of having an integrated real time collateral function for collateral management and allocation and got me wondering how many other firms are currently operating in this way, and how many firms rely on manual / spreadsheet solutions to handle the Collateral Management function? Martin Seagroatt, (http://www.linkedin.com/in/martinseagroatthttp://www.4sight.com/news


Comments

Not sure the behemoth of enterprise collateral management was needed to solve this one. Probably more like some point functionality to automating legal agreement terms and apply them to filter collateral sitting in the client account at BONY or Chase.