Euroclear’s highway to collateral
09 July 2012 Brussels
Image: Shutterstock
Euroclear has devised what it terms a ‘Collateral Highway’, which it hopes will create the first fully open global market infrastructure to source and mobilise collateral across borders.
It aims to help market participants move securities from wherever they are held to serve as collateral for access to central bank liquidity, secured transactions such as repos and securities loans, and margins for CCPs and bi-laterally cleared OTC derivative trades.
The ‘Collateral Highway’ will have multiple collateral entry and exit points. The entry points are where collateral will be sourced from all Euroclear central securities depositories (CSDs), agent banks, clearers and CSDs located in any time zone. The CMU unit of the Hong Kong Monetary Authority and BNP Paribas Securities Services have been the first to join.
The securities will then be transported to where they are needed as collateral. The highway is open to all CCPs, CSDs, central banks, global and local custodians, investment and commercial banks. Custodians, agent banks and CSDs without a collateral management service offering will be able to use the highway as their own for their domestic clients.
“The pressures of complying with new regulations and the liquidity crisis are forcing most financial institutions to re-define their operating models for collateral management. The focus is on two areas – collateral management across silos and collateral optimisation,” said Saheed Awan, global head of collateral management services at Euroclear.
He continued: “Financial institutions keep securities collateral in various locations for many good reasons. Thus, securities to be used as collateral are often ‘locked’ in a particular market, entity or time zone, reducing collateral management efficiency and securities optimisation for cross-border collateral purposes. We aim to resolve this problem by providing the infrastructure to move collateral where and when it is needed, no matter where it is held.”
Jo Van de Velde, managing director and head of product management at Euroclear, said: “As central banks and CCPs are to become the biggest takers of collateral, and given the amounts of collateral required, it is important that the market has a systemic and open solution to maximise collateral availability and mobility across borders 24 hours per day.”
It aims to help market participants move securities from wherever they are held to serve as collateral for access to central bank liquidity, secured transactions such as repos and securities loans, and margins for CCPs and bi-laterally cleared OTC derivative trades.
The ‘Collateral Highway’ will have multiple collateral entry and exit points. The entry points are where collateral will be sourced from all Euroclear central securities depositories (CSDs), agent banks, clearers and CSDs located in any time zone. The CMU unit of the Hong Kong Monetary Authority and BNP Paribas Securities Services have been the first to join.
The securities will then be transported to where they are needed as collateral. The highway is open to all CCPs, CSDs, central banks, global and local custodians, investment and commercial banks. Custodians, agent banks and CSDs without a collateral management service offering will be able to use the highway as their own for their domestic clients.
“The pressures of complying with new regulations and the liquidity crisis are forcing most financial institutions to re-define their operating models for collateral management. The focus is on two areas – collateral management across silos and collateral optimisation,” said Saheed Awan, global head of collateral management services at Euroclear.
He continued: “Financial institutions keep securities collateral in various locations for many good reasons. Thus, securities to be used as collateral are often ‘locked’ in a particular market, entity or time zone, reducing collateral management efficiency and securities optimisation for cross-border collateral purposes. We aim to resolve this problem by providing the infrastructure to move collateral where and when it is needed, no matter where it is held.”
Jo Van de Velde, managing director and head of product management at Euroclear, said: “As central banks and CCPs are to become the biggest takers of collateral, and given the amounts of collateral required, it is important that the market has a systemic and open solution to maximise collateral availability and mobility across borders 24 hours per day.”
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