4 Ways FCMs Can Optimise Collateral Efficiency and Bolster Capacity

Market volatility and its margin call impact are forcing futures commission merchants (FCMs) to scale capacity and optimise collateral efficiency. A recent PostTrade360 article, for instance, highlighted that several FCMs are looking to leverage technology to expand capacity to prepare for potential volume surges driven by heightened market fluctuations. Another interesting point the journalist raises is that while the number of FCMs managing customer funds in futures accounts has declined from 53 to 49 over the past five years, and future U.S. capital requirements remain uncertain, recent new entrants into the market hint at the potential emergence of a more competitive landscape. Adding further pressures to an already overflowing plate.

Maintaining resilience and profitability requires FCMs to prioritise operational efficiency, optimise balance sheet performance, and scale capacity in such a dynamic and demanding environment. During the 10 years I spent as an Optimisation Liquidity Manager for a major FCM, followed by my experience at Baton working with some of the world’s largest clearing firms, I’ve come to realise just how significant these challenges can be. And importantly, the critical role technology can play in overcoming them.

I’ve written this post to provide FCMs, who potentially lack the capitalisation of larger players, with five practical steps for effectively tackling these priorities.

The Impact of Market Volatility on Clearing Members 

Before I go through these steps, it’s important to recognise the enormous strain market volatility places on clearing members as they face sharp increases in margin calls and liquidity demands. For instance, following President Trump’s tariff announcements, markets witnessed a massive surge in margin calls. According to Reuters, derivative-related margin calls nearly tripled for hedge funds and other entities in April 2025. Similar strain was felt by clearing firms during other recent stress events, such as the failures of Credit Suisse and the Silicon Valley Bank, the Russia-Ukraine conflict, and energy market fluctuations, to name just a few.

The Financial Conduct Authority’s (FCA) March 2025 review of liquidity risk management at wholesale trading firms highlighted similar pressures, discussing how same-day margin calls (especially when received over consecutive days) during such crises can rapidly drain liquidity reserves, leaving firms scrambling to meet obligations. These calls can be especially challenging for smaller clearing members, who often operate with limited capital reserves. More than most, these firms must balance maintaining operational stability while carefully minimising financial vulnerabilities.

Rising to the Challenge With Scalable and Interoperable Technology Solutions

How can FCMs maximise collateral efficiency and handle growing trade volumes and margin calls amidst such volatile conditions? The way forward is to invest in resilient, high-performance post-trade technology and adopt intelligent, real-time collateral workflows to automate manual processes and in turn optimise operational efficiencies, increase return on capital, and scale capacity.

Furthermore, from a very practical perspective, this needs to be technology able to integrate seamlessly with the firm’s existing systems and processes, versus requiring the immediate rip out and replacement of what’s come before.

4 Recommendations for Optimising Operational and Collateral Efficiency and Scaling Capacity

Here are the key steps FCMs can take to achieve their goals in this context. 

1. Gain Real-Time Visibility of Collateral and Margin Obligations 

Effective collateral margin management begins with accurate, real-time visibility of sources and uses of cash and non-cash assets. Consolidating data from multiple venues, custodians, and counterparties into a unified view can help firms identify available liquidity across accounts and meet obligations without delays. 

Real-time visibility also enhances decision-making by enabling firms to locate unencumbered assets quickly, evaluate margin trends and deficit positions intraday, and track inefficient collateral optimisation, all of which can help reduce the risk of liquidity strain. 

2. Automate Eligibility Evaluation, Optimise Collateral Allocations and Movements

Optimising collateral placement can bring significant capital benefits when driven by automation. Configurable, no-code rules allow clearing members to streamline and optimise allocation processes and accelerate the deployment of available assets to where they will prove most effective.

Elevate Existing Collateral Optimisation Processes

Tools that automate the complex task of assessing collateral asset eligibility across counterparty requirements boost operational efficiencies, enabling FCMs to scale more effectively. By integrating these tools into collateral optimisation processes, FCMs can benefit even further by elevating the accuracy of portfolio recommendations. This can have a substantial economic impact, ensuring portfolio recommendations are based on precise and informed eligibility assessments tailored to specific accounts, products, and counterparties.

Execute Collateral Movements Faster

Next, FCMs need to focus on automating the execution of movement instructions to build out operational capacity. Advanced collateral management systems feature rules-based frameworks that can be leveraged to configure intelligent, automated workflows for the execution of bulk cash and collateral pledges or recalls across multiple venues via a single interface. Yes, this minimises manual intervention and removes bottlenecks, but possibly, even more importantly, it enables FCMs to activate funding decisions faster. In doing so, it provides the agility necessary to respond quickly and effectively in volatile market conditions.

Unlock Tokenisation Opportunities

Finally, as the adoption of digital assets accelerates, automation on this level will enable FCMs to leverage tokenised cash and securities to address existing hurdles to optimising capital efficiencies, such as time zone challenges and cut-off times. By streamlining processes and improving efficiency, FCMs can reap the benefits of a more agile, interconnected, and always-on 24/7 digital economy.

3. Enhance Liquidity Forecasting and Stress Testing 

Forecasting liquidity demand accurately during periods of heightened market activity is essential for sustained financial resiliency. Advanced liquidity models based on firm foundations using high-quality real-time and historical data enable FCMs to predict cash flow requirements under various stress scenarios more precisely. 

These tools also empower firms to simulate market conditions, assess potential vulnerabilities, and proactively implement strategies for mitigating liquidity risks. Whether faced with consecutive days of margin calls or an unplanned client delay, efficient forecasting ensures that clearing members are better prepared to meet obligations without compromising operational efficiency. 

4. Improve Collateral Efficiency and Return on Capital 

To compete effectively, FCMs must focus on maximising asset utilisation and minimising overfunding. By integrating real-time insights into collateral usage, firms can avoid unnecessarily tying up expensive, high-quality liquid assets and rapidly redeploy funds to optimise capital return. 

Sophisticated optimisation tools help firms establish movement corridors and deploy assets where they deliver the greatest economic benefit. These strategies form the backbone of balance sheet efficiency, enabling firms to remain competitive amidst evolving capital requirements and market dynamics. 

Intelligent, Scalable Technology and Its Role in Collateral Operations 

Investing in intelligent, scalable collateral management systems is no longer optional for clearing members. Post-trade innovations are now available to address pain points such as inefficient collateral workflows, fragmented and inconsistent data, and an ongoing reliance on manual processes. 

For instance, Baton Systems’ advanced collateral management software empowers FCMs with intelligent, automated collateral management workflows, real-time alerts, and direct two-way connectivity to the major CCPs (covering 96% of initial margin worldwide) to simplify and streamline collateral management.

By providing on-demand access to real-time balances held across banking, CCP and Carry Broker relationships and eligibility schedules, institutions can effectively optimise collateral allocations and then efficiently instruct bulk asset and collateral movements across multiple venues. Combined these capabilities enable FCMs to automate and optimise their collateral management operations.

Ensuring Resiliency and Collateral Efficiency Through Preparedness 

The ongoing pressures faced by FCMs make it clear that scalability, efficient margin management, and increasing balance sheet performance are now critical for survival in an increasingly competitive and volatile market. Clearing members can optimise capital, reduce risks, and maintain their competitive edge by automating collateral management workflows, gaining real-time insights, and adopting advanced tools.

If you’d like to explore specific strategies to enhance operational efficiency, manage volatility more effectively, or unlock greater value from your balance sheet, reach out directly via our contact form and we can arrange a time to speak.