Clearstream
Richard Glen
25 June 2013
The partnership with Standard Chartered is the third that we have announced—the other two in place are with BNP Paribas Securities Services and Citi. The objective of this model, Liquidity Hub Connect, is to allow mutual clients to access inventory that they hold at these custodian partners as part of a much wider international financing pool.
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What is the aim behind Clearstream’s recent partnerships?
The partnership with Standard Chartered is the third that we have announced—the other two in place are with BNP Paribas Securities Services and Citi. The objective of this model, Liquidity Hub Connect, is to allow mutual clients to access inventory that they hold at these custodian partners as part of a much wider international financing pool. In reality, this means that whereas clients wanting to finance assets would have had to do a market delivery to our local custodian, we can now open an account at their custodian and mobilise any assets for financing via a book-entry transfer.
Where the Liquidity Hub Connect model specifically adds value is that we have automated that operational stream, making it easier for clients to physically manage their day-to-day activities. But at the same time, we also monitor the eligibility of the assets held in the domestic markets. So if a client comes to us and says it has a trade with a specific counterparty and it is able to finance a wider range of assets, what our technology allows us to do is look across all of the inventory pools it has with any of the partners that we’re connected to ‘virtually’, and we can simply instruct on the assets that are eligible and mobilise them via one central mechanism.
What about partners that you’re not connected with?
We’re talking to a number of custodians looking to increase the collateral management options they can offer to both sell-side and buy-side clients, and so we expect BNP Paribas Securities Services, Citi and Standard Chartered to be the first of many more to come. Strategically, our intention is to make collateral location-agnostic and to support optimisation irrespective of where the client chooses to hold their inventory. This complements our wider Global Liquidity Hub strategy of helping clients get access to new liquidity and collateral pools and to help the market resolve the issues of collateral fragmentation.
How does this compare to other triparty service providers?
Where we have a competitive advantage against other triparty service providers is the fact that we’re already live with our product and the fact that our processes work in real-time. As and when eligible assets become available in the local market, and when they need be used as part of any financing transaction, we can mobilise assets held with any Liquidity Hub Connect partner, in any eligible market, on a ‘just-in-time’ basis.
In contrast, some of our peers still rely on batch processes. This means that in terms of reaction time, our clients benefit from a much faster, more optimal access to financing. But at the same time, assets need to not only move in to be financed but also moved back in order to cover bilateral transactions, outright sales, maybe domestic stock loans and here, our system also carries out all the substitution and optimisation processing in real-time.
More and more institutions are looking to their global inventory pools and our system can operate across time zones, in real-time, in local time, and so can react when each individual market opens and closes. For example, you might hold assets in Asia at the end of the local business day that you could finance with European or US counterparties. A client can mobilise these assets at the end of the local day as part of their ‘virtual’ inventory pool to support European or US activities and then, as the Asian markets begin to re-open, we can monitor the local inventory needs in Asia and then re-align assets back into the domestic market to cover any bilateral obligations there when needed. When the client prints a new ticket, they don’t need to tell us what they want to move from each location because that is something that we already see and more importantly, can immediately act upon.
How does the notion of a ‘longbox’ fit into this vision?
‘Longbox’ is a term used by some triparty agents to denote a main account used to support clearing and settlement and even local credit line requirements. Our Liquidity Hub model ‘connects’ into a client’s ‘longbox’, meaning that as purchases, sales and transfers are instructed or settle at the custodian, the position manager within our collateral engine is refreshed automatically to allow us to screen any changes in eligibility and availability. This enables us to react accordingly to any local needs and optimise the use of their inventory in real-time both across the Liquidity Hub and their custodian network
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