The Challenge

Nomura Asset Management (Nomura) previously used an outsourced collateral management provider to support the growth of its bilateral over-the-counter (OTC) derivatives program. During the first years of the uncleared margin rules (UMR) rollout, which focused on variation margin (VM), Nomura found the outsource provider's services sufficiently met their collateral management needs.

In recent years, however, the heightened regulatory demand under UMR and scrutiny over collateral agreements resulted in the volume of disputes escalated to the Nomura team from its former outsource provider to surge exponentially. Every escalation led to complex research and analysis of the dispute by the Nomura team to determine an optimal response. This put extra burden on internal resources and slowing down the process between each phase of the collateral management lifecycle.

As a result, Nomura decided to review its collateral management process in Japan and UK, and dependency on an outsource provider to address the following needs:

• Reducing costs. It was not commercially viable to pay for an outsource provider while using more internal human resources to manage the increase in escalations. Business goals for cost reduction meant bringing this function fully back in-house and establishing innovative ways to manage collateral within a reduced budget.
• Creating efficiency. Managing collateral disputes across external and internal teams was becoming a bottleneck in the process. They therefore identified the need for the team to have a single and immediate enterprise view of the entire collateral process to improve consistency and efficiency.
• Migration from outsourcing to internal management. Housing collateral management outside Nomura solved its Variation Margin problem, but it came with a high service cost and the firm was using more internal resources to handle the increase in escalations from the outsource provider. They concluded it should be migrated in-house but realized it would be a complex project management effort to migrate from the external provider to internal management. They therefore identified a key requirement as selecting a solution partner that could facilitate smooth and quick onboarding, as well as ongoing ease of use and support.
• Building capacity. Certain aspects of the collateral management process would always require involvement from Nomura's internal team. Having access to a third-party market/ industry expert would enable Nomura to learn best practices, retain objectivity and deepen knowledge on UMR to make right the decisions on collateral agreements.

The Solution

What Nomura found was the cost of outsourcing had become prohibitive and they were keen on bringing back collateral management in-house while reducing cost. After an assessment of high-cost legacy solutions, they realized they would need to implement new technology to achieve the conflicting business objectives of doing more with less. The team, therefore, was seeking a solution partner to assist in its transition and journey to embrace new technology, rather than an outsource provider. After a rigorous and detailed due diligence process, Nomura decided that the IHS Markit Collateral Manager developed with CloudMargin's technology was a natural fit. The solution provided these key features and value-adds:

• Future-proof cloud-based solution. IHS Markit leveraged key technology from CloudMargin to launch Collateral Manager, the first cloud-based collateral management solution for both, buy and sell side. Being hosted in the cloud means that Nomura no longer has to worry about upgrades and maintenance of the platform going forward and can minimize the human resources that would have been needed for this function.
• Visibility and control over the process. Bringing the function in-house provided teams with greater visibility into the collateral and margining process. This access enabled quicker daily collateral processing with a single view of data and status.
• Centralized and standardized workflow. An end-to-end collateral management workflow tool that covered every aspect of the collateral management cycle in one centralized platform for all instruments and asset classes.
• Highly automated and scalable. A highly automated and robust system that eradicated the need for manual processes. This immediately saved valuable time for the team, so they could focus on other areas of the business. The scalability of IHS Markit's Collateral Manager also meant the solution could adapt and expand according to Nomura's trading activities.
• Low cost. Significantly less expensive than their outsource provider and alternative solutions in the market.
• Critical partner with expertise and technical know-how. Constant access to subject matter experts at IHS Markit for practical advice and guidance through the evolving regulatory landscape.

The Benefits

The Nomura team expressed a high level of satisfaction after testing IHS Markit's Collateral Manager and has since reaped multiple benefits by going live with the low-cost, high-value and cloud-based solution.

• Integrated workflow within an in-house team
• Avoid barriers of an outsourced agreement
• Meet strenuous regulatory deadlines
• Ensure reporting accuracy in a timely manner
• Adaptable to changing trading activities and business needs
• Save costs
• Speed up daily workflow

"IHS Markit's solution fits the collateral management need that Nomura cannot deliver in-house alone. We look forward to continue meeting regulatory and market requirements in partnership with IHS Markit's experts," says Nomura.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.