CSDs Upgrade Collateral Services

Terry Flanagan

Collateral management has become a hot button issue with the advent of global regulations mandating that OTC derivatives transactions be centrally cleared, and this has spurred post-trade services providers, such as central securities depositors, to reduce the time needed to settle transactions.

“For market participants, the current and future regulatory reforms pertaining to derivatives and capital are expected to contribute to collateral and liquidity shortfalls, as well as increased funding costs and operational complexity. These challenges have prompted the buy-side to explore new ideas, tools and partners,” said Kurt Woetzel, chief executive officer of BNY Mellon’s Global Collateral Services business.

BNY Mellon has launched Collateral Universe, the company’s suite of second generation collateral management capabilities, designed to help buy-side clients manage the impact of regulatory change on their investment processes.

Collateral Universe combines the company’s comprehensive range of collateral management and related solutions with the benefits provided by its central securities depositary – BNY Mellon CSD – and its new Collateral Aggregator.

BNY Mellon’s Collateral Universe encompasses collateral management functions including segregation, optimization, aggregation, securities financing, liquidity management, consulting, derivatives lifecycle management and reporting.

“We have transformed our business model, investing in new capabilities specifically to address the new challenges facing market participants,” said Nadine Chakar, head of product development & strategy, Global Collateral Services at BNY Mellon. “Our Universe provides the next generation of collateral solutions and demonstrates BNY Mellon’s leadership and innovation.”

In May, BNY Mellon CSD signed a framework agreement with the Eurosystem to allow it to outsource settlement to the T2S platform. As a direct T2S participant, the CSD will have the opportunity to leverage, among other capabilities, the settlement platform’s auto collateralization program for central bank money and its collateral pooling facilities to help speed up the velocity of collateral within global markets.

Separately, Iberclear, the Central Securities Depository in Spain and a BME subsidiary, will use Swift’s Value Added Network (VAN) to connect to T2S. Iberclear intends to go live on T2S connecting via the Swift VAN in February 2017.

“We are focused on offering post-trade solutions that provide our community with the highest levels of security, stability and scalability,” said Jesús Benito, CEO of Iberclear. “We are confident that Swift is the right T2S connectivity solution for us, bringing unmatched benefits in terms of resilience, price, proven infrastructure and re-use of expertise.”

The objective of T2S is to facilitate post-trading integration by offering core, neutral, harmonized and commoditized delivery-versus-payment settlement in central bank money in substantially all securities in Europe. Swift’s VAN enables participants to connect to the T2S platform for the secure exchange of business information, in ISO 20022 format.

Established to help clients address new regulations including Basel III, Emir, AIFMD and MiFID as well as the advent of T2S, BNY Mellon’s Brussels-based CSD has received a Belgian Royal Decree granting it Securities Settlement System (SSS) status.

As an SSS, BNY Mellon CSD is formally recognized to be an appropriate system under Emir for the holding of financial instruments as margins or as default fund contributions for CCPs, an important component in assisting clients to reduce their risk in line with the EU Settlement Finality Directive.

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