The way forward to collateral fluidity
13 June 2017
SIX Securities Service—through SIX Repo—is developing a new methodology based on the seamless sourcing and pooling of collateral. Head of repo and securities finance Nerin Demir explains
Image: Shutterstock
New global regulatory requirements are currently forcing parties in the financial value chain to look differently at how they collateralise their counterparty exposures. Firms will be required to hold a greater proportion of cash and high-quality liquid assets.
SIX Securities Service—through SIX Repo—is developing a new methodology based on the seamless sourcing and pooling of collateral. In close cooperation with industry bodies, clients and regulators, it is committed to raising key challenges in the area of securities finance and develop better ways to deliver innovative, high-quality, state-of-the-art solutions.
Some of these topics raised recently cover:
The increasing demand for equity repo financing
SIX Repo has increased the number of equity index baskets and added two additional security types, US equities and fixed income (treasuries). The inclusion of US equities will enhance the already broad equity financing portfolio that SIX Securities Services offers, covering the major European indices (SMI, DAX, CAC40, FTSE, MIB and IBEX) while complementing SIX Repo’s ‘repo on demand’ service, enabling the financing of any combination of tailored baskets.
Single access to market liquidity
SIX Repo’s collateral management strategy--supported by the Swiss National Bank--builds on its current triparty service and brings a new independent and integrated solution to the market, facilitating improved access to market liquidity and collateral hubs. The future offering will increasingly relieve the operational burden of the two entities engaged in a trade by taking on all post-trade processing during the life cycle of the trade, such as the collateral allocation and automatic substitution as well as settlement and payment.
The future role of distributed ledger technology in collateral management
Distributed ledger technology could eliminate costly and time-consuming collateral settlement moves, and instead track the collateral in a near real-time environment while providing almost instant insight into which collateral position is currently in use or available. This means that real-time collateral management can be plausible without any significant cost increases, providing many benefits to banks balance sheets.
SIX is currently working on two use cases to create new services leveraging distributed ledger technology--one is focusing on the product issuance process while the other is focusing on collateral optimisation capabilities
About CO:RE: The integrated securities finance offering from SIX Securities Services
CO:RE (Collateral & Repo) is the real-time securities finance offering powered and operated by SIX Repo. It brings together trading and collateral management capabilities in a fully integrated value chain starting from trading through settlement and finally to collateralisation at the central securities depository or custodian level. The need to drive efficiency, reduce risk and control costs has resulted in an efficient collateral management offering for all market players, providing benefits for banks, broker-dealers, insurance firms, commercial banks and asset managers alike.
SIX Securities Services provides a multifaceted electronic trading facility offering single-point access to the over 160 counterparties trading repo contracts across 14 currencies. Central bank money and commercial bank money are both available as well as access to the Swiss National Bank’s primary market for the issuance of money market instruments. Thanks to excellent operations, the accuracy of exposure coverage and the solid legal framework, no haircuts are applied to the available collateral whereas the range of collateral covers a wide range of currencies and geographical areas.
SIX Securities Service—through SIX Repo—is developing a new methodology based on the seamless sourcing and pooling of collateral. In close cooperation with industry bodies, clients and regulators, it is committed to raising key challenges in the area of securities finance and develop better ways to deliver innovative, high-quality, state-of-the-art solutions.
Some of these topics raised recently cover:
The increasing demand for equity repo financing
SIX Repo has increased the number of equity index baskets and added two additional security types, US equities and fixed income (treasuries). The inclusion of US equities will enhance the already broad equity financing portfolio that SIX Securities Services offers, covering the major European indices (SMI, DAX, CAC40, FTSE, MIB and IBEX) while complementing SIX Repo’s ‘repo on demand’ service, enabling the financing of any combination of tailored baskets.
Single access to market liquidity
SIX Repo’s collateral management strategy--supported by the Swiss National Bank--builds on its current triparty service and brings a new independent and integrated solution to the market, facilitating improved access to market liquidity and collateral hubs. The future offering will increasingly relieve the operational burden of the two entities engaged in a trade by taking on all post-trade processing during the life cycle of the trade, such as the collateral allocation and automatic substitution as well as settlement and payment.
The future role of distributed ledger technology in collateral management
Distributed ledger technology could eliminate costly and time-consuming collateral settlement moves, and instead track the collateral in a near real-time environment while providing almost instant insight into which collateral position is currently in use or available. This means that real-time collateral management can be plausible without any significant cost increases, providing many benefits to banks balance sheets.
SIX is currently working on two use cases to create new services leveraging distributed ledger technology--one is focusing on the product issuance process while the other is focusing on collateral optimisation capabilities
About CO:RE: The integrated securities finance offering from SIX Securities Services
CO:RE (Collateral & Repo) is the real-time securities finance offering powered and operated by SIX Repo. It brings together trading and collateral management capabilities in a fully integrated value chain starting from trading through settlement and finally to collateralisation at the central securities depository or custodian level. The need to drive efficiency, reduce risk and control costs has resulted in an efficient collateral management offering for all market players, providing benefits for banks, broker-dealers, insurance firms, commercial banks and asset managers alike.
SIX Securities Services provides a multifaceted electronic trading facility offering single-point access to the over 160 counterparties trading repo contracts across 14 currencies. Central bank money and commercial bank money are both available as well as access to the Swiss National Bank’s primary market for the issuance of money market instruments. Thanks to excellent operations, the accuracy of exposure coverage and the solid legal framework, no haircuts are applied to the available collateral whereas the range of collateral covers a wide range of currencies and geographical areas.
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