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By Beverly Chandler, Opalesque London:

Regulatory changes in Europe and the US are driving buy side firms to focus on the management of their collateral according to a study published by risk solutions firm Algorithmics and Chromozome Consulting, a niche collateral management consultancy.

The introduction of central clearing for OTC trades will not reduce the operational requirements for buy side firms, the report says, but instead will create further challenges. The study, 'Collateral management for the buy side: Emerging Challenges and Best Practices in a Changing Regulatory Environment’, features responses from 80 buy-side institutions around the world, including asset managers, hedge funds, pension funds and custodians.

Over half of the organisations surveyed reported that they were exposed to potentially increased levels of risk by performing weekly margin calls over daily margining. Despite 84% of respondents using a vendor collateral management solution (this includes outsourcing service providers), the report found it surprising to see that only 46% of respondents made margin calls on a daily basis, particularly when most (82%) organizations reported that they are processing over fifty margin calls a week.

The report lists the implications of making margin calls on a weekly basis as

• Risk: Weekly margin calls create more risk for an organization since daily changes in exposures remain potentially uncollateralized. This means that a firm ma......................

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