The Australian Securities Exchange (ASX) Group has signed a letter of intent with international central securities depository (CSD) Clearstream, part of Deutsche Börse, to develop a new service that will help market participants manage their collateral requirements more efficiently.
Clearstream will develop an automated, centralised, collateral management service that links directly to ASX-owned CSDs Austraclear and CHESS and offers market participants more efficient means of managing bilateral and central counterparty risk exposures with non-cash collateral and short-term funding requirements. For example, it will help market participants to securitise their positions via the appropriate grade or quality of assets to ensure the optimal use of collateral.
According to ASX, the pool of potential non-cash collateral held in CHESS and Austraclear exceeds $2.4 trillion and includes a wide range of equity and debt securities. The collateral management service will be offered subject to ongoing negotiations between ASX and Clearstream, and regulatory authorisation.
The need for more efficient use of collateral management will be a key issue following the impending introduction of new rules relating to over-the-counter derivatives trading in the US and Europe and capital adequacy requirements under Basel III, which will require firms to collateralise more of their exposures.
The announcement follows the launch of a similar initiative by Clearstream with Brazilian CSD CETIP, which went live in July. A number of domestic exchange groups are in talks with Clearstream to construct similar services.
“The large amount of collateral held in ASX depositories presents an opportunity for us to deliver a domestically operated, centralised and fully automated collateral management service,” said Peter Hiom, deputy CEO of the ASX. “This will allow ASX customers to directly use securities held in CHESS and Austraclear to manage their exposures and to facilitate the funding of their market activity. It will also deliver cost and operational benefits to our customers.”
“Our collateral management service addresses the major industry concern to consolidate and streamline collateral management activities. All users will immediately benefit from future system enhancements in line with market requirements and regulatory demand,” added Clearstream CEO Jeffrey Tessler. “We will continue to grow this model with a strong partnership approach that incorporates the needs of our strategic partners and their underlying customer base.”