Importance of Collateral Management05.23.2012
With the global financial markets under increasing regulatory pressure and scrutiny, post-trade services including clearing and collateral management have become a key step of the trading process.
“Collateral and liquidity management has taken a very prominent if not dominant role at board level across all financial institutions globally,” Stefan Lepp, Frankfurt-based chief executive of Clearstream Banking and head of global securities financing told Markets Media. “Furthermore, the focus on the regulatory changes, balance sheet restrictions, new reporting requirements, account segregation challenges and credit-driven limitations have changed the priorities within most institutions.”
Post-trade services, including clearing, settlement and collateral management, have all been thrust into the spotlight as integral services in today’s capital markets. Clearing covers the calculation of participants’ net obligations or net rights prior to settlement. Settlement is a composite of processes to transfer assets and financial resources between buyers and sellers, thus setting off the rights and obligations that stem from clearing.
Demand for collateral management has also grown amid Dodd-Frank in the U.S. and the European Market Infrastructure Regulation, or Emir, in Europe, as well as the impending Basel capital rules, which require the increased use of collateral in order to cover exposures and mitigate counterparty risk.
Iberclear, the Spanish central securities depository and subsidiary of Bolsas y Mercados Españoles (BME), and the international central securities depository Clearstream, the securities settlement and custody unit of German exchange group Deutsche Börse, have signed an agreement to develop a new tri-party collateral management service for the Spanish market. Spain becomes the first European market to use Clearstream’s Liquidity Hub GO service after Brazil, Australia, South Africa and Canada.
“Iberclear will be in a position to cope with the growing demand from the local market towards sophisticated and streamlined collateral management services in line with the upcoming regulatory changes,” said Lepp. “Furthermore, there is room for further service extensions in the field of automated and optimized exposure coverage outside Spain and the identification and mobilization of international collateral held at Clearstream to cover respective exposures.”
Since launching in other regions, Clearstream’s collateral management services have been a success. It launched in Brazil in July 2011 and has seen growing volumes since then. It will soon launch the second phase of the process in Brazil, which incorporates the identification and mobilization of international collateral held with Clearstream, together with the already activated mobilization of domestic Brazilian collateral held at the CSD in Brazil, which is their partner Cetip. Australia, South Africa and Canada, which are at different levels of service and product specifications, all are on track in terms of timeline for Clearstream, according to Lepp.
“We are sure the new service jointly developed with our partner [Clearstream] will satisfactorily meet the demands of our clients, who in the current environment need, more than ever, tools to securely and efficiently handle their collateral,” said José Massa, chairman of Iberclear. “The service is a major step forward for Iberclear and the Spanish market as it will allow our clients to manage their collateral holdings and exposure more efficiently without moving it out of Spain.”
Clearstream is based in Luxembourg and was founded in 2000 through the merger of Cedel International and Deutsche Börse Clearing. Its international central securities depository operations are based in Luxembourg. It also acts as the central securities depository for Germany.
CEDX is planning to expand its range of products in 2023, subject to regulatory approvals.
The CFTC regulated derivatives market and clearer was not included in FTX's bankruptcy filing.
Schroders cleared NDF trades across a Asian and Latam currency pairs via Citi.
The derivatives venue owned by FTX wanted to offer products that were not fully collateralized.
Cboe acquired EuroCCP on 1 July 2020.