CSDs Team Up On Collateral05.17.2013
Two of the world’s largest central securities depositories, DTCC and Euroclear, are collaborating on a service to provide transfer and segregation of collateral based on margin calls relating to OTC derivatives.
The service will reduce settlement risk, increase transparency around collateral processing on a global basis and will provide maximum asset protection for all participants, the companies said.
DTCC and Euroclear will also establish mutual links, permitting firms to manage collateral held at both firms’ depositories as a single pool.
“As the central securities depository for U.S. securities, DTCC is involved in collateral management, but we don’t have the capability to segregate collateral or manage settlement for securities not eleigible at DTC, such as many non-U.S. securities,” DTCC managing director Mark Jennis told Markets Media. “However, Euroclear does have those capabilities, so together we can address collateral needs globally.”
The industry is focused on collateral management as a result of concerns over how to address operational and counterparty credit risk while navigating the changing regulatory landscape.
DTCC’s Margin Transit Utility, currently under development, will help mitigate risks, lower costs and create greater efficiencies, by providing straight-through-processing to help satisfy obligations of clients, including sealers, futures commission merchants (FCMs), buy side firms, investment managers, custodians and administrators.
Euroclear has a similar service called Collateral Highway. More than EUR 700 billion of collateral was transported via the Collateral Highway on a daily basis at the end of 2012.
“As demand for collateral increases, both DTCC and Euroclear are each developing our own means to ease collateral sourcing and mobilization for clients,” said Tim Howell, CEO of Euroclear, in a statement. “Euroclear’s global Collateral Highway is a key part of our strategy to deliver such an infrastructure.”
The premise behind Margin Transit is that as global regulations mandating central clearing of OTC derivatives take effect, the workflow processes surrounding collateral and margin management need to be streamlined and made more efficient.
“The driver is the view that the number of margin calls will increase significantly as a result of regulations and industry changes, which will create a host of risk and processing challenges,” said Jennis. “These include funding, safekeeping, recordkeeping, and reporting.”
The joint service will be operated as an industry cooperative and will provide open and non-discriminatory access to all other collateral processing providers, including custodians, CSDs and ICSDs, that wish to link their services to the service.
In 2012, the Euroclear group settled the equivalent of EUR 542 trillion in securities transactions, representing 159 million domestic and cross-border transactions, and held more than EUR 23 trillion in assets for clients.
In 2012, DTCC’s subsidiaries processed securities transactions valued at approximately US$1.6 quadrillion. Its depository provides custody and asset servicing for securities issues from 131 countries and territories valued at US$37.2 trillion.
Justin Chapman will lead the Digital Assets and Financial Markets group.
BNP Paribas Asset Management launched its first European ESG ETF Barometer survey.
By Greta Zhou and Andy Cheung, APAC AES, Credit Suisse
The ETF provides a way for investors to potentially profit from a decline in the price of bitcoin.
With Julien Messias, Founder, Head of Research & Development, Quantology Capital Management