As with other areas within the financial industry, collateral management is evolving. It is moving beyond its primarily regulatory-driven persona, and instead is shifting toward cost-saving opportunities, with a focus on optimisation and innovation.
Having spent over a decade within the collateral management sphere, Amy Caruso, head of collateral initiatives at the International Swaps and Derivatives Association (ISDA), says the process has become increasingly holistic, not just within firms, but across the ecosystem.
鈥淚t's nowhere near as siloed as it was even a few years ago. Rather than approaching collateral for over-the-counter derivatives, exchange-traded derivatives, repo, and securities lending separately, we're seeing many more buy side firms looking at how they can optimise across cleared and non-cleared products,鈥� Caruso explains.
There also appears to be an increasing amount of third-party offerings to help streamline the collateral management ecosystem. According to Caruso, firms are looking to mutualise solutions and opportunities to use technology built by third parties.
In her review of the changing attitudes toward collateral management, Caruso highlights that while regulation remains an underlying theme that is still driving collateral management evolution, it is moving beyond this. Firms are now asking themselves: How and where can cost savings be achieved? How can we benefit from operational and liquidity improvements?
Movements shaping collateral
Regulation is something the industry cannot escape. The Uncleared Margin Rules (UMR) in particular is continuing to impact markets as industry participants prepare for its go-live in South Africa in September 2025, and China in 2027. While India went live with UMR in April 2025, the region faces its next implementation date in September.
As the impact from UMR continues to grow, resourcing eligible collateral via repo and securities lending is a growing trend 鈥� and reality.
As new jurisdictions are expected to onboard with UMR in the coming months and years, some jurisdictions have gone live with a limited number of firms initially because of the IM threshold. For example, Mexico is live but there are a limited number of firms or entities that are posting and receiving IM in the country.
鈥淲e work with the ISDA public policy team to encourage harmonisation of the rules across jurisdictions and identify areas of refinement,鈥� says Caruso. 鈥淲e also provide education on collateral management, including training on the ISDA Standard Initial Margin Model to support implementation.鈥�
Also on the regulatory radar for participants is the US Treasury clearing mandate which is to take effect on 31 December 2026 for eligible cash market transactions, and 30 June 2027 for eligible repo market transactions.
The Treasury market is the world鈥檚 deepest and most liquid financial market and is the primary means by which the US government raises funding. Treasury repos are widely used to support the exchange of collateral, which is central to the functioning of the derivatives market. Disruption in the Treasury repo market could impair the exchange of collateral for cleared and non-cleared derivatives, according to ISDA CEO Scott O鈥橫alia.
In terms of the Treasury clearing regulation, ISDA recognises the importance of a liquid US Treasury market for a holistic collateral management ecosystem. Caruso explains: 鈥淚t is important to how collateral moves 鈥� not just in the US, but around the globe.鈥�
She continues: 鈥淲e have engaged with our buy and sell side members, clearing houses, and policymakers to provide feedback and help ensure the requirements are implemented efficiently from an operational and capital perspective.鈥�
For example, the association highlighted that the amount of margin posted and corresponding bank capital requirements should reflect the actual risk of client exposures across their entire portfolios 鈥� 鈥渢his is crucial to the efficient clearing of US Treasuries鈥�.
Other impacts to the movement of collateral have been highlighted in the latest ISDA Margin Survey, which identified a growing trend in the use of more non-cash collateral for non-cleared variation margin (VM).
Caruso explains that firms are implementing improved operational practices to accommodate non-cash movements and liquidity management, including the substitution improvements in the association鈥檚 suggested operational practices update 鈥� which was driven by ISDA members asking to manage non-cash collateral more efficiently.
According to the survey鈥檚 findings, IM and VM collected by derivatives market participants for their non-cleared derivatives exposures increased by 6.4 per cent to US$1.5 trillion at the end of 2024.
As a collective, the 32 firms participating in the survey accumulated US$431.2 billion of IM at the end of 2024 versus US$430.9 billion in the previous year. VM collected by survey participants for non-cleared derivatives rose by 9.3 per cent to US$1.0 trillion versus US$939.9 billion collected at the end of 2023.
The survey results highlight an important shift 鈥� a gradual diversification from cash collateral toward a broader mix of eligible securities.
Cash remained the predominant form of collateral for VM, although its share has gradually declined from a peak of 80 per cent in 2020 to 68.3 per cent in 2024.
Over the same period, the share of government securities has fluctuated modestly, rising from 12.7 per cent in 2020 to 17.8 per cent in 2024. Notably, the share of other securities has steadily increased, reaching 13.8 per cent in 2024, the highest level seen over the past six years.
鈥淔irms don鈥檛 necessarily want to move away from cash, but they want to have the ability to post more government securities, corporate bonds, and even equities, especially in times of market volatility,鈥� Caruso states.
A four-pronged approach
Celebrating its 40th year, ISDA has been supporting the industry with a key vision in mind: to make the global derivatives markets safer and more efficient. With over 1,000 member institutions from 76 countries, the association has taken a four-pronged approach to the further development of collateral initiatives.
Leading the charge here, Caruso pinpoints the key areas of importance for the first half of 2025: public policy initiatives; automation and streamline processing of margin and collateral; training and education; and data standards.
To support public policy initiatives, such as UMR, the association has been working on refinements to the regulation, which are already in place within certain jurisdictions, and helping firms comply in other jurisdictions that are implementing the requirements. Further, Caruso and the team have been focusing on harmonising the rules and expanding the use of eligible collateral 鈥� for example, to money market funds, tokenisation, and digital assets.
In order to expand automation and streamline processing of margin and collateral, the association has published updates to its OTC derivatives collateral management suggested operational practices, which focused on substitution.
鈥淲e're now working on collateral management vendor resiliency. We鈥檒l be looking at this both with our members and other trade associations,鈥� Caruso adds.
In the area of automation, she reveals that the team has also worked with the Financial Market Standards Board on its spotlight review on non-cleared margin, which looked at areas of opportunity for improving automation and streamlining processing.
To meet a more holistic collateral management environment, ISDA has expanded its training offering 鈥� which has served more than 500 people globally since September 2023. This service includes an online fundamentals class and in-person master classes, which cover legal documentation, regulations, and operational workflow.
Caruso elaborates: 鈥淚nitially, this was targeted at operations professionals, but we are also attracting people from compliance, legal, and the front office. It demonstrates how collateral management is so much more transversal than it was a few years ago when it was just an operations responsibility.鈥�
In terms of the association鈥檚 work on data standards, the team has been collaborating with the International Securities Lending Association (ISLA), the International Capital Market Association (ICMA), and FINOS, on the build out of the Common Domain Model (CDM) 鈥� which is an open-source data model.
鈥淲e're specifically working on collateral use cases, which include streamlining digital documentation, such as initial margin and variation margin credit support annexes, to help with document execution and onboarding,鈥� says Caruso. 鈥淭his is alongside a use case on the representation of eligible collateral, which can help reduce operational friction and collateral-related disputes.鈥�
Caruso highlights the significance of having industry-wide data standards, which she says is vital to the future of collateral management automation. With ISDA, ISLA, ICMA, and FINOS members working together to identify key areas to build and deploy the CDM, Caruso says 鈥渋nteroperability can become a reality鈥�.
She explores: 鈥淎s tokenised and digital assets start to be used for collateral, having a common data model like the CDM will be imperative, as will having smart contracts that use the CDM as their foundation. Otherwise, you'll have innovation with a distributed ledger, but you'll have an old-school PDF document 鈥� that just doesn't make sense.
鈥淔irms need to digitise processing from start to finish. It takes the ability of smart contracts with the CDM as the data model to operationalise collateral management efficiently.鈥�
A growing interest
鈥淭he industry is showing growing interest in tokenised and digital assets as collateral, but we don't have the full end-to-end workflows established with industry-wide data standards.鈥�
To support this increasing interest from the market, Caruso and the team are working with the association鈥檚 public policy and legal colleagues on the use of tokenised and digital assets as collateral.
ISDA participates in a number of industry initiatives and working groups, such as Global Digital 麻豆影视传媒 鈥� which is focused on tokenised money market funds 鈥� the FINOS CDM Tokenized Assets Working Group, and Project Guardian in Singapore, to name a few.
In July, ISDA and Ant International led a Project Guardian FX industry group to develop a new report for implementing tokenised bank liabilities and shared ledger in cross-border payments and foreign exchange settlement.
The joint report is produced under the Monetary Authority of Singapore鈥檚 (MAS) Project Guardian, a global collaboration between policymakers and key industry players to enhance liquidity and efficiency of financial markets through asset tokenisation.
ISDA and Ant International are members of the industry group and lead the FX workstream to develop FX data specifications, risk management frameworks, and FX documentation.
According to the report, use cases by the industry group show that tokenised bank liabilities and shared ledgers can result in faster, more secure and efficient cross-border payments.
By enabling interoperability between bank solutions, payments can be completed 24/7 with FX settlement conducted in real-time, the association says. Payment settlement time is also reduced to minutes or even seconds, providing a more seamless payment experience for businesses and their customers.
However, Deloitte's 'Better, faster, cheaper' report indicates that a universally-accepted industry framework is required for industry-wide adoption, which it says could lower cross-border transaction costs by 12.5 per cent, saving businesses more than US$50 billion by 2030.
Reflecting on ISDA鈥檚 core focuses for the second half of the year, Caruso insists the association will press ahead with ISLA, ICMA, and FINOS on the CDM for collateral use cases. For example, the team is currently working with members to expand the CDM with legacy credit support annexes (CSAs) and develop test packs to streamline implementation of the CDM for digital documentation use cases.
鈥淲e also recently began a working group on collateral management vendor resiliency,鈥� Caruso adds. 鈥淚 expect we'll make updates to ISDA鈥檚 collateral management suggested operational practices and potentially work with other trade associations on this topic.鈥�
In the second half of 2025, ISDA will continue to explore opportunities for expanding eligible collateral for non-cleared VM given the growing interest in this area, and will work on recommendations from ISDA鈥檚 鈥楩uture Leaders in Derivatives鈥� programme white paper, which explored challenges and opportunities in collateral and liquidity management.
The paper addresses issues driven by regulatory complexity, market fragmentation, and systemic vulnerabilities, and outlines practical strategies to address these issues. The recommendations include optimising the use of collateral, expanding and diversifying the pool of eligible collateral, and modernising the infrastructure through technology.
As the association forges ahead with its plans, like the rest of the industry, it will work to adapt to an evolving collateral environment, preparing its members for a new digitally-focused world.
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Image: Amy Caruso 