Clearstream has launched a bilateral collateral management service for OTC derivatives as part of its Global Liquidity Hub.
The Deutche Börse-owned clearer said the service will cover the full lifecycle of collateral management activity including mark-to-market, margining, portfolio reconciliation and settlement follow-up.
Clearstream said collateral management will help customers overcome collateral fragmentation created as a result of regulator changes in both the banking sector and OTC derivatives trading.
Increased pressures on bank balance sheets as a result of higher capital requirements under Basel III mean that banks are unable to supply the same amount of collateral as they have in the past. This comes at a time when regulations such as the Dodd-Frank Act and European market infrastructure regulation are increasing demand for collateral, as OTC trades will now need to be centrally cleared.
The collateral management service will help clients optimise allocation by enabling them to cover OTC, triparty and central counterparty exposures from a single collateral pool.
Clearstream suggests that this will be especially useful in derivatives trading as clients face a challenge to manage two streams of exposure for cleared and uncleared trades.
Stefan Lepp, head of global securities financing at Clearstream, said: “Our bilateral collateral management service OTC Collateral is an important expansion of the Global Liquidity Hub and will strengthen our offering to banks and the buy-side in line with the growing demand in the OTC derivative space.
“Its seamless connection to the triparty world via a range of reuse possibilities will enable customers to meet all their exposures from a single collateral pool, regardless of whether they are bilateral, triparty or to a CCP.”
The collateral management space has seen an escalation in competition in recent months as firms seek to help clients deal with an expected collateral shortage as global derivatives regulation pushes up demand for high quality collateral across markets.