CloudMargin’s Stuart Connolly on how to manage collateral amid high rates at FIA Boca 2023

Rick Steves

FinanceFeeds Editor-in-Chief Nikolai Isayev spoke with Stuart Connolly about CloudMargin’s SaaS platform, said to be the only cloud-native collateral and margin management system in the industry, at a time of stress due to rising interest rates.

The Futures Industry Association (FIA) welcomed the global derivatives industry to the 48th annual Boca International Derivatives Conference, held on 14-16 March in Boca Raton, Florida.

FIA Boca 2023 attracted more than 1,000 attendees, including 40 exchanges and trading venues as well as regulators, brokerages, trading firms and solutions providers looking to take the pulse of the industry as trading volumes in global exchange-traded derivatives rose by 34%, printing a new record for the 4th consecutive year.

CloudMargin, cloud-native multi-asset solution for managing collateral and margin

Among the attendees was Stuart Connolly, CEO of CloudMargin, a cloud-native collateral and margin management system that provides a cross-asset solution supporting front-to-back workflow processes and covers all assets and instrument classes, from pre-trade to settlement and reporting. Its network of integrations include multiple platforms and downstream systems for end-to-end, straight through processing across the entire collateral workflow.


Collateral management became essential amid higher funding costs

CloudMargin aims to centralize, automate, connect, and optimize its clients’ collateral management with a SaaS solution that covers all stages, including pre-trade analytics, initial margin (IM) & variation margin (VM) exposure calculations, collateral messaging, disputes, settlement, and reporting. CloudMargin is the only collateral and margin management system created specifically for the cloud.

Stuart Connolly has led CloudMargin since June 2019, after serving as Group CEO for TriOptima AB for more than two years. Well versed in fintech, OTC markets, trading risk management, credit risk mitigation, operational risk services, banking, equity finance and prime brokerage, Connolly spent 18 years at Goldman Sachs, where he ran several businesses focused on helping clients mitigate risks from their trading activities across credit derivatives, interest rates and foreign exchange.

His expertise in mitigating risk comes in handy at a time of heightened volatility and consecutive interest rate hikes, which are putting pressure on market participants. Against this backdrop, It comes as no surprise that CloudMargin reported record revenue growth in its fiscal year ending March 31, 2023, as well as record growth in new clients.

“We’re doing our jobs properly”, Stuart Connolly told FinanceFeeds Editor-in-Chief Nikolai Isayev at FIA Boca 2023. “It’s a great platform and clients are utilizing it to the very full extent the way we designed it to be used, in a multi-asset class way. Growth is proof of what we’ve been doing.”

Connolly then summed up what CloudMargin is all about and the necessity for an innovative collateral management system today. “We’re a tool that helps clients mitigate client and counterparty risk. It’s an uncertain world at the moment; we came out of a pandemic with lots of assistance to global economies that led to an inflation spiral and interest rate hikes trying to curb that. The macroeconomic environment and volatility have driven clients to think much more closely about how they margin their collateral, the true cost. Funding costs have gone up through higher interest rates.”

CloudMargin helps clients mitigate risk by providing transparency over their collateral inventory, how they’re utilizing that inventory, how they post net around the marketplace, and how they optimize that. With such an increase in funding cost, collateral management has become “kind of essential”, he said as he admitted that “the current macro environment is definitely beneficial to our business.”

CloudMargin is agile with quick product deployments

As we watch Silicon Valley Bank filing Chapter 11 and Credit Suisse being acquired by UBS to prevent its collapse, Stuart Connolly noted that despite that, the financial services industry is much more robust today than in 2008 and it has much to do with regulation. “Regulation absolutely worked to a very great extent” as they are preventing contagion despite the loss of confidence and run on banks.

“Bringing that back to relevance of collateral, regulation insisted that collateral become a much more important part of the ecosystem. It shifted from this ‘boring thing in the back office that no one cares about’ to a very important risk management component. Regulators mandate collateral movements and collateral against lots of types of exposure. We’re a beneficiary of that”, Connolly explained, emphasizing that CloudMargin has numerous competitive advantages, including its modern tech stack and origins in the cloud.

This cloud-native SaaS approach allows CloudMargin to be agile, with quick platform deployments and continuous upgrades, allowing all users to benefit from a community effect. “The more clients we bring on, the more functionality we develop to manage the sophistication of clients’ requirements. Clients are our partners. They drive our product development roadmap”, he said, as he noted the firm is constantly innovating: instead of quarterly release cycles, CloudMargin does that on a daily basis, having released 900 new enhancements to features and functionality last year alone.

“FX is in a pretty strong place”

When asked about the BIS report, which stated that the daily FX turnover subject to settlement risk was $2.2 trillion in 2022, Connolly noted that these numbers can be misleading and that there’s been quite a revolution in FX market structure in recent years, with CLS managing a lot of netting exposures, real time settlement, matched settlements, and most recently with FX clearing – “which is something new happening in the FX space   that mitigates systemic credit risk in the FX market. FX is in a pretty strong place.”

CloudMargin was the first collateral management solution provider to be a member of SWIFT, a network said to be facing pressure from geopolitical and technological (blockchain) forces. Stuart Connolly, however, dismissed the idea of disruption to such an established, incumbent network. Still, innovation, challenge, and competition are a good thing and will make SWIFT better, I’m sure.”

As to the move to a shorter settlement cycle, from T+2 to T+1, in the United States and Canada, Connolly warned that “there’s a lot of legacy tech that sits around in institutions in certain pieces of market infrastructure that are very difficult to modernize”. This means that, although reducing settlement time is positive, the industry will definitely face challenges by doing that. “Upgrading tech and processes is not simple; it’s non-trivial. There will be a period of pain, with increased fails. It’s a challenge but the right thing to do.”

Stuart Connolly ended the interview by noting the very ambitious product roadmap will be organic as the firm addresses direct requests for different resources, but the priority is to help clients manage risk on a day-to-day basis, helping them with asset transparency and the ability to recall and substitute them in bulk in order to manage risk efficiently and achieve significant cost reductions.

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