Euroclear has added Hong Kong-focused bank Standard Chartered to global initiative to streamline collateral provisions for tri-party repo transactions, ahead of regulation expected to create a strain on collateral demand.
Euroclear's global 'Collateral Highway' will use assets for mutual clients held at Standard Chartered, which is the first Asia-based bank to join the scheme.
All equity and fixed income securities held within the Standard Chartered custody network can potentially become eligible assets to be used as collateral when Euroeclear serves as the tri-party agent in a repo transaction.
New regulatory regimes based on G-20 goals in the US and Europe will require many types of OTC derivatives transactions to be collateralised and centrally cleared. Coupled with global Basel III rules for banks to hold more collateral, market participants may be faced with shortage of high-quality collateral.
Repurchase agreements, known as repos, are one core solution to meet this growing appetite for collateral, and Euroclear's Collateral Highway seeks to use bank-held assets to facilitate this strategy.
"The agreement with Standard Chartered to make assets in their network available to the Collateral Highway will ease cross-border financing," said Olivier Grimonpont, general manager and region head, Asia-Pacific, of Euroclear Bank, adding that his firm was already active in collateralising a broad range of transactions, including cross-border RMB repo deals.
"Access to assets held by Standard Chartered to collateralise these transactions will open the market even further. We are delighted to be partnering with Standard Chartered to add a triparty dimension to their collateral management service offering and to offer even deeper pools of liquidity to our mutual clients," he said.
Under the initiative, Standard Chartered will continue to hold the assets as custodian while the securities move across markets and time zones via Euroclear's Collateral Highway. These assets may be transported as collateral to cover exposures arising from, repos, loans, derivatives and central counterparty margins.
In March, Euroclear Bank and BNP Paribas Securities Services, a global custodian with over US$7 trillion in assets under custody, announced the launch of joint tri-party collateral management arrangements via the Collateral Highway. Mutual clients are now able to access securities held at BNP Paribas Securities Services as collateral for tri-party operations conducted by Euroclear Bank.