Post-trade services providers Euroclear and the Depository Trust and Clearing Corporation (DTCC) are joining forces to allow firms to manage holdings at both depositories across the Atlantic as a "single collateral pool".
US-based DTCC and Belgium's Euroclear have signed a memorandum of understanding to develop a joint service that will initially offer automatic transfer and segregation of collateral, based on agreed margin calls for OTC derivatives and other collateral contracts.
The service - which is an expansion of Euroclear's global cross-border collateral initiative, the Collateral Highway - would also allow firms to manage collateral held at both depositories.
The joint initiative is aimed at helping market participants in their search for collateral; a key concern following regulatory changes to the OTC derivatives landscape.
The US Dodd-Frank Act and the European market infrastructure regulation (EMIR) have introduced central clearing rules for swaps, including increased collateral requirements. Coupled with tougher global capital adequacy rules for banks under Basel III, market participants fear a shortage of high-quality collateral.
"In order to manage your collateral efficiently, you've got to know where it is," Saheed Awan, global head of collateral management services at Euroclear, told theTRADEnews.com.
"We're able to give you a view of your inventory of all your assets no matter where they are around the world."
With the new partnerships, DTCC customers would be able to move securities from wherever they are held with Euroclear's Collateral Highway, whether it be for central bank liquidity, margins for central counterparties (CCPs), bilaterally cleared swaps trades or other secured transactions.
According to Euroclear, more than €700 billion worth of collateral was transported via the Collateral Highway on a daily basis at the end of 2012.
Awan said Euroclear first launched the Highway with partnerships in Europe and Asia, but it wasn't until talks with DTCC that they decided to expand the service into the US.
"It allows us to extend the operating hours of the Highway to well passed Europe closing time. Investment banks' clients will be able to utilise their Euroclear assets in the European time zone, and now, after this is implemented, the assets held at DTCC. It's one global inventory," he said.
When it hits 5.30pm in Brussels, Awan said inventory would then be moved to the US to meet North American counterparts' obligations.
Euroclear customers would also be able to access DTCC's Margin Transit Utility - an automated messaging service for margin management for OTC derivatives, connecting the buy-side, brokers, CCP and depositories, that is currently under development.
DTCC president and CEO Michael Bodson said the Margin Transit Utility would help mitigate risk, lower costs and create greater efficiencies.