A memorandum of understanding signed with Newedge and EuroMTS will promote the use of Euroclear’s global Collateral Highway as a means to manage collateral for tri-party repo transactions conducted on the Newedge/MTS Agency Cash Management (ACM) platform in Europe.
The agreement also covers joint marketing of the service as well as education of existing and potential non-bank clients on the ease and safety of tri-party repo transactions.
“The agreement with Newedge and MTS will go very far in ensuring best execution of Agency Cash Management tri-party repo deals on a straight-through basis,” said Tim Howell, CEO, Euroclear. “Given the caution with which market participants are managing risk in the current environment, the Collateral Highway helps cash givers and receivers mitigate counterparty risk by easily collateralising credit exposures with diversified pools of securities on a segregated basis.”
ACM is a market-led, FSA-regulated platform launched by multi-asset broker Newedge and fixed income market operator MTS in January 2012 as an auction-driven platform for tri-party repo transactions between cash and collateral providers. The platform is geared towards the institutional repo market. Cash providers are generally hedge funds, pension funds, corporates, central banks, family offices, investment managers and bank treasurers, while collateral providers are usually investment banks, commercial banks and asset managers.
Nicolas Breteau, CEO, Newedge, said the new regulatory framework would bring significant changes to the way institutional investors manage cash and collateral. “Linking the ACM platform with Euroclear’s Collateral Highway creates a unique solution that helps participants maximise the efficiency and transparency of their repo transactions and to meet all pre- and post-trade, operational and inventory management obligations,” he commented.
On 11 March, meanwhile, 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.
“By joining forces, we alleviate one of the challenges of collateral fragmentation by making the transfer of collateral to the right place at the right time as seamless and operationally simple as possible,” said Frederic Hannequart, chairman, Euroclear Bank.
Alain Pochet, head of clearing, settlement and custody at BNP Paribas Securities Services, said the first trade completed through this partnership was executed in the Spanish market. “It allowed our mutual client to use available securities held with BNP Paribas Securities Madrid as collateral for the tri-party transaction administered by Euroclear Bank,” Pochet explained. “We are confident that this collaboration will continue to bear fruit in future- in fact, this same service is already available in the Italian market as well.” BNP Paribas and Euroclear Bank are currently working to extend the scope of the arrangement to the main European and Asian markets.
Euroclear’s global Collateral Highway was launched in July 2012 as a new collateral management and securities financing infrastructure to source and mobilise collateral across borders. It links commercial and investment banks, supranationals, central banks, central counterparties and other capital market infrastructure providers across time zones and markets.
Reporting by Richard Schwartz