The need for financial efficiency is nothing new in the capital markets. Financial institutions have long looked to manage and reduce operational costs while maintaining high levels of service and compliance. 

However, the consequences of inefficiency have seldom been more profound. Indeed, McKinsey rates financial efficiency is one of the most important drivers of performance in financial institutions. As it writes in its Global Banking Annual Review 2023: “Variations [in performance] indicate the extent to which operational excellence and decisions relating to cost, efficiency, customer retention, and other issues affecting performance are more important than ever for banking. Strongest performers tend to use the balance sheet effectively, are customer-centric, and often lead on technology usage.”

The last point is important. The latest digital, cloud-first technologies have a clear role to play in driving financial efficiency at financial institutions. The first gain is in time savings resulting from replacing time-consuming manual workflow with automated alternatives. Organisations that embrace this shift benefit from a significant return on their technology investment through efficiency gains. For example, in securities financing, firms leveraging digitised collateral management tools can reduce the time spent on creating schedules, which translates to bottom-line savings. 

Streamlined post-trade processing both adds to productivity and reduces the risk of errors, providing traders with the capacity to take on more business and enhance client service. Automation in collateral management and post-trade processes, for example, can drive dramatic reductions in operational risks, decreased settlement failures, and impressive STP rates.

Digital optimisation tools can also improve Financial Resource Management (FRM) processes. Many FRM desks use securities financial structures to control their balance sheet, liquidity, and asset mix to help ensure compliance with regulations mandating capital ratios. However, the time-consuming process of agreeing, executing, and managing trades leaves little time for teams to focus on managing the balance sheet efficiently. 

Optimisation tools can help by simplifying and systematising the recall and substitution process of the principal composition basket and bilateral collateral basket. These tools in effect establish a central marketplace for lenders and borrowers and enhance trade capture to ensure term sheets are well-defined and adhered to lifecycle management tools. They also provide a user-rule-driven optimisation tool to manage recalls and substitutions and ensure optimal inventory allocation across bilateral principal and collateral baskets.

A third area where optimisation can help in driving financial efficiency is in cash flow management. Managing cash flows is one of the most challenging areas of lifecycle management in the Total Return Swaps (TRS) market due to the complexity of TRS products. Financial institutions have traditionally spent many long hours mapping how changes to trades impact on cash flows, with even small errors in cash flow calculation dramatically increasing operational risk.

Cash flow management tools provide a solution to this challenge by automating the entire process. Wematch’s own Cash Flow Management module is a case in point. Our tool leverages data from the Wematch platform, enriched with corporate actions data, to independently calculate cash flows. We help reduce breaks at source,  ensuring fewer cash flow breaks and further driving efficiency.

Ensuring financial efficiency remains a key priority for financial institutions. Optimisation tools, such as those provided by Wemarch, offer a quick and reliable way to dramatically increase financial efficiency, providing a significant boost to firms’ operations. 

To learn more about Wematch.live, please reach out.

Photo by Karsten Würth on Unsplash

The views and opinions expressed are for informational and educational purposes only as of the time of the writing/production and may change at any time. The material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.