Elenjical and ActiveViam partner to tackle South African HQLA challenge

Financial Services

South African financial institutions, in line with international standards, have made great strides implementing the regulatory reforms required in the OTC derivatives market. These regulations have increased the demand for high-quality collateral assets and put a renewed focus on collateral transparency.

Specifically, by February 2023, the Johannesburg Stock Exchange (JSE) will allow for non-cash collateral to be posted on South African Futures Exchange (SAFEX) for OTC derivatives trades. This change follows global institutions, with local industry aligned and ready to implement the regulations. This will make collateral management and optimization a priority.

This will require a sea change in the way many South African financial institutions do business. Furthermore, Regulation 28 prescribed in the South African Pensions Fund Act will require insurance companies to adopt a more complex approach to manage their collateral. Harnessing data in seconds and minutes and turning it out through complex calculations is no easy feat.

The journey for many South African financial institutions is not unlike that of any global financial player. The volatility of the Rand and the credit rating of South African sovereign debt makes sourcing HQLA to serve as collateral for centrally and non‐centrally cleared derivatives even more of a challenge. During the high volatility of the Covid pandemic, one such institution had to post a significant amount in collateral in 1 day – although they were in excess of securities.

This is why financial services tech consulting firm Elenjical Solutions and ActiveViam, a multi-award-winning data analytics platform provider specialized in capital markets solutions, have created an official partnership that will bring the benefits of ActiveViam’s analytics platform to the financial services community in South Africa.

In particular, ActiveViam’s expertise in inventory analytics and collateral optimization solutions and Elenjical’s focus on technology consulting and systems implementation, provide the right combination of proven technology and outstanding support to all the South African institutions under pressure to meet regulatory requirements.

ActiveViam meets this challenge by deploying an agnostic, firm-wide, cross-asset aggregation platform that ensures users have a real-time, consolidated view of collateral exposure, collateral types and inventory levels. Information is updated incrementally as soon as the underlying data changes (new trades, FX rate change etc.) and is available to multiple users who can access the data simultaneously.

Sudden, large market moves require the front office to assess different data sets on an intraday basis in order to evaluate whether additional variation margin is needed to cover a trade. This requires of-the-minute access to collateral inventories as well as a microscopic view of counterparty risk. ActiveViam allows users to interrogate collateral data at any level and perform instant ‘what-if’ analysis to evaluate alternative optimization scenarios. These might include cherry-picking assets, excluding portfolios, or strategic asset withdrawal.

Overall, the right software solution will enable the easy aggregation, optimization and analysis of large volumes of complex, dynamic data enabling firms to perform deep-dive and scenario-based analytics and really understand their margin exposure and cost-of-trading. Once bankers have a clear view of their collateral positions they can free up cash to trade. The approach we are advocating also potentially saves traders hours every week as they no longer need to work out the best collateral for every trade and can instead concentrate on making profits.

2023 will accelerate the transformation of collateral management and optimization in South African financial markets. Making the most of the collateral will be essential to boost revenues and minimize costs. It is simply not enough anymore to just have a view of the collateral – the analytics to drive key decisions quickly for a business will certainly become more critical.

For more information please see Collateral Optimization 3 Case Studies.

Jeanine Prezioso

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Jeanine Prezioso is the Content Marketing Manager for Financial Services at ActiveViam based in New York. She brings with her nearly two decades of writing and editing experience as an award-winning financial journalist, editor and researcher. Jeanine has written about global energy trends, monetary policy and the impact of regulatory changes on the swaps and derivatives markets. Jeanine has also planned and managed events, conferences and press briefings and has conceptualized, outlined and tailored content for them. She is fluent in Italian and is a graduate of Columbia University’s Graduate School of Journalism in New York.