Euroclear and the Depository Trust and Clearing Corporation (DTCC) have joined forces to launch a new collateral processing infrastructure.
The joint venture will initially focus on launching a Margin Transit Utility (MTU) that will provide straight through processing to the settlement of margin obligations, and on piloting a Collateral Management Utility (CMU) to help with collateral optimisation.
"In bringing together two of the industry's largest post-trade market infrastructures, we will be addressing sub-optimal collateral mobility and allocation issues by creating the biggest open architecture collateral processing ecosystem, accessible to all market participants across the globe,” Tim Howell, CEO of Euroclear, said.
“By delivering tangible benefits to the industry, we will improve efficiency and mitigate risks at a time when regulatory change is expected to significantly increase the volume of margin calls and securities collateral settlement."
Market participants are bracing for a collateral shortage following OTC derivatives rule changes. Both Europe and the US have introduced requirements to centrally clear OTC derivatives trades, requiring market participants to post margin. This is coupled with Basel III rules that require banks to hold more capital. As a result, a number of organisations are launching ways to market participants to better manage collateral across asset classes and borders.
The joint venture will operate open architecture services, where DTCC’s and Euroclear’s settlement platforms represent two of many linked settlement locations. The aim is to extend access to other interested settlement platforms such as central securities depositories, custodians and settlement agents.
When fully operational, the Euroclear/DTCC utilities will be integrated to provide a seamless front-to-back collateral processing platform.
The joint venture is still subject to several conditions, including completion of documentation, final approval from the boards and receipt of any necessary regulatory approvals.