Citis Mariam Rafi Discusses the Importance of Optimised Collateral Management.pdf

Citi’s Mariam Rafi Discusses the Importance of Optimised Collateral Management

Mariam Rafi

Global Head of Financial Resource Management
and North American Head
of Clearing and FXPB, Citi

Mariam Rafi is Global Head of Financial Resource Management and North
American Head of Clearing and FXPB for Citi’s Futures, Clearing and FXPB
division. In the second PAY21 show Mariam talks to Jerome Kemp, Senior
Advisor to Baton Systems, about the evolution and importance of the role of
collateral within the broader clearing context.

Asked about the reasons for the interest in collateral movements in recent
years, Mariam comments that there has been a marked increase in the amount
of collateral moving through the system as more of the market has moved
to central clearing. Demand for collateral, she says, is also increasing with
the non-cleared margin rules on the horizon which will impact a number of
Citi’s clients in September. Added to this, the COVID volatility of spring 2020
highlighted other factors around collateral usage such as margin procyclicality
of the CCPs, and increased firms’ liquidity needs.

“We have been very focused on figuring out how to use both the collateral
that clients post to us, and our own liquidity resources, in the most effective
manner,” Mariam says.

Broadening the scope of collateral that firms can use for their liquidity needs is
becoming an increasingly important theme. “Flexibility to post collateral in its
various forms is becoming more and more important to our clients,” Mariam says.
“CCPs are broadening their collateral scope to include a broader range of products.

“As an FCM we need to be very nimble in keeping up with the growing range of
assets which our clients want to be able to post to meet their margin requirements.”

The Benefits of Connectivity

Mariam goes on to describe how Citi put together an overall collateral strategy
based on the holistic integration of the firm’s liquidity needs.

“One of the things that became clear to us was how disjointed the process

“We are seeing real efficiencies of scale.”

of posting collateral to the CCPs is, as a clearing member,” Mariam says.
“Everyone has different ways of doing it. Many of the major CCPs require
securities movements to be plugged into a GUI manually. This is not strategic.”

Mariam explains that the fact that Baton was building out broad-based
connectivity via CCP APIs was very attractive to Citi, reducing as it did the
need for Citi to build out individual CCP connectivity and allowing the bank’s
collateral team to move much more seamlessly.

“We are seeing real efficiencies of scale,” she says, “with Baton able to bring more
and more CCPs on board as other FCMs realise the benefits of their connectivity.”

Simplifying Collateral Movements

Transparency in terms of both sources and uses of funding, Mariam says, is
another element of Citi’s collateral strategy. “We partnered with Baton to integrate
with our custodians as well,” she explains, “and to build out real-time functionality
on what our long boxes held. This is a new development in the industry.”

Baton was able to reflect the contents of Citi’s custodian long boxes by
updating SWIFT messages throughout the day so that the firm knew what was
being held at any given time. This is a significant departure from the industry
standard method of relying on start-of-day snapshots.

“It allows us to be much more nimble about using client collateral on an
intraday basis,” Mariam says.

Citi saw how Baton’s technology also helped to simplify the firm’s collateral
movements to foreign CCPs where previously a number of ‘hops’ were required
in order to navigate multiple legal entities, time zones and cutoffs.

“We found that the functionality Baton offered fit nicely with the business
objectives we wanted to achieve”, Mariam explains.

“We can be much more nimble about using client collateral on an intraday basis.”

Reducing Funding Needs

Mariam goes on to say that last year’s market volatility showed that
operational friction can drive a lot of inefficiency in funding. “On the one hand
you have market stresses requiring increased outlays of funds,” she says, “but
operational noise can also magnify that effect. The fact that we can now reflect
our sources and uses of collateral in real time allows us to move securities

“The Baton rollout
has helped us to
utilise customer
assets more
efficiently.”

more quickly and eliminates the need to borrow to cover customer margin
requirements that are already covered. These things have yielded very tangible
benefits in terms of reducing our funding needs, even when the markets are
more volatile.

“We hold a huge amount of customer assets. The question is how we utilise
those assets most efficiently and move them rapidly over to the CCPs. The
Baton rollout has helped us facilitate that.”

Finally, Mariam explains that Citi is partnering with Baton to build out an
optimisation algorithm that is integrated into the firm’s holistic collateral
management system. “This is going to be incredibly important,” she says. “As
more and more people post collateral, the CCPs are charging fees that vary
between different venues. This adds an additional layer of complexity, so
integrating the Baton optimiser into our overall inventory and movement
process is another way for us to reduce our costs to third parties.”

About

Mariam Rafi is Global Head of Financial Resource Management for Citi’s
Futures, Clearing and FXPB division in New York. Prior to joining Citi in 2011, she
spent nine years at Deutsche Bank.

Mariam holds an MBA and BSc. in Economics from The Wharton School of the
University of Pennsylvania.