London - An industry wide European study from SIX Securities Services has revealed the differing opinions between IT decision makers and collateral experts on a range of key issues. This split is most evident when it comes to views on the availability of high-quality liquid assets (HQLA).
The vast majority (83%) of collateral respondents think that there is a shortfall while only 47% of IT decision makers agreed. 63% of collateral respondents went as far as to say that there is a significant shortfall, while only 17% of IT respondents hold this view. The discrepancy between the two is more apparent within sell-side organisations where there is a 47% difference on the issue compared to a 17% difference in buy-side organisations.
Differing opinions between the two areas of specialisation also extend to views on the quality of collateral. 53% of IT decision makers believe that it is acceptable for collateral to be low quality, complex and opaque so long as it is cheap, whereas only 30% of collateral respondents have this view.
In reverse, almost two thirds (60%) of collateral heads believe that collateral must be simple, high quality, liquid and easy to value. Only 13% of IT respondents agree that it needs to be simple while 33% believe that the cost of collateral is 'the only thing that matters'. While collateral specialists are likely to have a deeper understanding as to the requirements of collateral, the level of disparity between the two is cause for industry concern, particularly in terms of future challenges.
Despite over half (53%) saying it is acceptable for collateral to be low quality, IT decision makers think that the biggest collateral optimisation challenge for the future is in fact low quality collateral (57%). The biggest concern for collateral heads (70%), however, is that with the cost of lending and borrowing increasing, it will make the cost of collateralising OTC trades too expensive to make the trading activity viable.