In the complex world of securities financing, Financial Resource Management (FRM) desks at banks face a multitude of challenges. From managing balance sheets and liquidity to ensuring compliance with regulatory requirements, FRM desks must navigate a constantly evolving landscape. However, the fragmented nature of the securities financing market and the limitations of legacy systems often hinder the efficient execution and management of trades.

The Challenges of Traditional FRM Processes

Traditionally, the recall and substitution process of principal composition and bilateral collateral baskets has been a time-consuming and manual task. FRM desks often struggle with disjointed infrastructure, incompatible systems, and bespoke trade requirements. The lack of standardisation and automation leads to operational inefficiencies, increased risk, and missed opportunities for optimisation.

Moreover, the manual nature of these processes leaves little time for FRM desks to focus on their core objective: managing the balance sheet as efficiently as possible. The inability to quickly and accurately assess inventory, apply constraints, and optimise asset allocation can result in suboptimal trades and reduced profitability.

The Need for Automation and Optimisation

To overcome these challenges, FRM desks require advanced solutions that can streamline their operations and optimise their trades. By leveraging automation and intelligent optimisation tools, FRM desks can transform the way they handle the recall and substitution process.

A centralised marketplace that brings together lenders and borrowers can provide enhanced trade capture capabilities, ensuring that term sheets are well-defined and adhered to throughout the lifecycle of the trade. This level of granularity enables FRM desks to apply specific criteria, such as eligible tax IDs, eligible assets, concentration limits, substitution rights, and special conditions, aligning trades with their unique requirements.

Comprehensive inventory management is another crucial aspect of an effective FRM solution. Automatically updated inventory and recall lists, along with the ability to send excess inventory as discoverable interests, allow FRM desks to optimise their inventory allocation across bilateral principal and collateral baskets. By ensuring that assets are deployed efficiently, FRM desks can maximise their returns and minimise their risks.

The Power of Advanced Optimisation Tools

To truly transform the FRM process, advanced optimisation tools are essential. These tools enable FRM desks to prioritise assets based on a range of factors, such as country of issuer, country of listing, tenor buckets, tax ID, currency, and more. By defining buffers, tolerance levels, and restrictions, FRM desks can tailor the optimisation process to their specific risk management strategies.

Seamless integration is another key feature of a cutting-edge FRM solution. The ability to add recall and inventory lists manually or via API, along with customisable trade booking templates, ensures that data remains accurate and up-to-date. Automatic reconciliation of on- and off-platform activity further enhances the efficiency and reliability of the FRM process.

The Benefits of Automated FRM Solutions

By adopting an automated and optimised FRM solution, banks can realise significant benefits. Enhanced efficiency is achieved by comparing recall and inventory lists with names in ongoing principal baskets, and identifying and addressing inefficiencies. A holistic approach that considers bilateral collateral baskets placed with counterparties ensures that all inventory is taken into account when optimising a portfolio of trades.

Automated processes allow users to instruct recalls and send efficient substitutions simultaneously within defined optimisation rules and constraints, all at the click of a button. Two-way communication and negotiation can be managed in a single workflow environment, with a full audit trail and integration options with booking systems. This ensures standardisation, accuracy, and efficiency across the entire trade lifecycle.

Moreover, an advanced FRM solution enables FRM desks to easily top up or reduce the ongoing notional of a trade by setting a target before running the optimiser. The result is an optimal addition or recall of efficient assets in the principal basket, ensuring that the trade balance is maintained after market-to-market moves.

Embracing the Future of FRM

As the securities financing landscape continues to evolve, forward-thinking companies like Wematch are at the forefront of revolutionising Financial Resource Management. By developing cutting-edge solutions that harness the power of automation, intelligent optimisation, and seamless integration, we are empowering FRM desks to streamline their operations, optimise their trades, and achieve unparalleled efficiency.

If you’re ready to take your FRM processes to the next level and unlock the full potential of your securities financing operations, exploring the latest advancements in automated optimisation is a step in the right direction. Embrace the future of FRM, and position your bank for success in the rapidly evolving world of securities financing.

To learn more, reach out.

Photo by Moritz Lüdtke 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.