Expanding collateral pools in a volatile market

Trends in asset mobilisation

Volatility has shifted from being a background risk to a structural driver in today’s derivatives markets. A key trend we're observing at CloudMargin, is seeing firms mobilise a broader range of collateral assets than ever before, as continued market swings increase demand for flexibility.

Traditionally, cash and government securities formed the cornerstone of most collateral frameworks. However, in recent years, asset pools have expanded to include corporate bonds, equities and ETFs. This shift isn’t just opportunistic, it’s a necessity.

Events such as the 2022 commodity crisis and the 2023 banking sector tremors exposed the limits of relying solely on cash and government securities. In response, clearing houses (CCPs) and bilateral agreements have broadened eligibility schedules, creating both opportunities and new layers of complexity.

As market participants and front offices work to boost liquidity through asset mobilisation, risk departments are tightening controls to manage correlated exposure with increasingly complex eligibility and concentration rules. 
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Rising complexity in eligibility and concentration rules

At CloudMargin, we’re seeing collateral eligibility schedules become progressively sophisticated. Examples include:

• Incorporation of clearing house averages and weighted average life measures
• Expansion into new asset classes such as equities, ETFs and Letters of Credit
• Detailed inclusion and exclusion criteria tied to asset-specific parameters.

Concentration limits are also evolving. Conditional rules like “asset eligible if exposure > X” or “limit applies only if collateral balance > Y”, are appearing more frequently in Credit Support Annexes (CSAs).
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Balancing liquidity and risk

When well-managed, this added complexity drives real benefits. A balanced combination of eligibility and concentration rules can:

• Expand usable assets and boost liquidity
• Support a “cheapest to deliver” approach for funding optimisation
• Ensure diversification, reducing overexposure to any single asset or risk factor.

Broader eligibility also strengthens resilience in stressed markets, enabling firms to post a broader range of assets. During the September 2022 UK mini-budget crisis, for example, firms with narrow eligibility schedules were constrained, while those with broader collateral acceptance were able to adapt more effectively.
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Managing complexity requires modern systems

Before renegotiating collateral terms with counterparties, firms must ensure their collateral management solution can keep pace with today’s ever-evolving requirements. Legacy systems simply can’t keep up.

Modern platforms, like CloudMargin, go well beyond basic validation checks, delivering the flexibility to manage:

• Intricate eligibility rules, including a diverse range of asset parameters through configurable rule-based logic
• Complex concentration limits based on conditional rules and extensive asset criteria
• Automated eligibility and compliance checks, optimisation rules and collateral bookings through Straight-Through-Processing (STP)
• Real-time, customisable reporting delivering clear visibility across available inventory and posted positions.

With the right collateral management platform, firms can convert complexity into opportunity—enhancing liquidity whilst maintaining robust risk controls.

Expanding collateral pools in a volatile market isn’t only about increasing eligible assets. Firms need to strike the right balance between liquidity, risk and operational resilience. Flexible, modern collateral management technology like CloudMargin makes this possible.