Importance of Collateral Management
With the global financial markets under increasing regulatory pressure and scrutiny, collateral management services have become a key facet of the post-trade process.
“With the fall of Lehman Brothers along with other macroeconomic events, sophisticated collateral management solutions is becoming a significant global demand,” said Stefan Lepp, chief executive officer of Clearstream Banking. “Collateral management has actually gone through the journey from a niche service in the past to a key topic to on top of lists of each organization.”
Clearstream Banking is the clearing and settlement division of Deutsche Borse, and is based in Luxembourg. The company was founded in 2000 through the merger of Cedel International and Deutsche Borse Clearing. Its international central securities depository operations are based in Luxembourg. It also acts as the central securities depository for Germany.
The company is in the process of forming collateral management agreements with several markets around the world. Its first partnership, which went live on July 18, was with Brazilian central securities depository Cetip on July 18. As part of the agreement, Cetip essentially outsourced its collateral management obligations to Clearstream. The company asserts that it is the only collateral management services provider in a position to manage collateral across time zones and regions while the assets stay in the respective domestic market, under local legislation, which is a regulatory requirement in many countries.
“The feedback (in Brazil) has been extremely positive,” said Lepp. “They understood that this is a functionality that will not weaken the market, everything stays in the Brazilian markets and under Brazilian regulation.”
“Brazil triggered a significant wave of interest out there in the market,” said Lepp. “We’re engaged with a significant number of different markets, right now in many of the markets, we’re in the negotiation and fact finding process.”
Clearstream in August announced it had entered into negotiations with the Australian Securities Exchange to develop a new collateral management service for the Australian market. According to Lepp, the service is not yet live in Australia as of yet, but remains on track to launch according to their projections.